Inferring Transactions from Financial Statements*

In this paper, we embed the double entry accounting structure in a simple belief revision (estimation) problem. We ask the following question: Presented with a set of financial statements (and priors), what is the reader's “best guess” of the underlying transactions that generated these statements? Two properties of accounting information facilitate a particularly simple closed form solution to this estimation problem. First, accounting information is the outcome of a linear aggregation process. Second, the aggregation rule is double entry.     

Collective Choice and Control Rights in Firms

Recent writers have asserted that firms controlled by workers are rare because workers have diverse preferences over firm policies, while investors all support wealth maximization. However, the source of the asymmetry between capital and labor remains unclear. We resolve this puzzle by arguing that because financial capital is exceptionally mobile, capital markets induce unanimity. The lower mobility of human capital implies that labor markets are monopolistically competitive and hence that unanimity cannot be expected in labor‐managed firms. Moreover, such firms are vulnerable to takeover by investors, while capital‐managed firms are substantially less vulnerable to takeover by workers.     

PRODUCT IMPROVEMENT AND TECHNOLOGICAL TYING IN A WINNER‐TAKE‐ALL MARKET*

In a winner‐take‐all duopoly for systems in which firms invest to improve their products, a vertically integrated monopoly supplier of an essential system component may have an incentive to advantage itself by technological tying. If the vertically integrated firm is prevented from technologically tying, there is an equilibrium in which the more efficient firm invests and serves the entire market. However, another equilibrium may exist in which the less efficient firm wins the market. Technological tying enables a vertically integrated firm to foreclose its rival. The welfare implications of technological tying are ambiguous and depend on equilibrium selection.     

ASSET PRICE CHANGES AND MACROECONOMIC MEASUREMENT OF PROFITABILITY

On the basis of national accounts data, this article compares two different measures for the profitability of non‐financial corporations, between France and the United States over the last two decades. The two measures differ in the way they evaluate the various elements that are integrated in the profitability calculation. The first measure corresponds to the usual practice which ignores the holding gains and losses on assets concerning some components of the profit measurements. In contrast, the second takes full account of these holding gains and losses on assets in corporations' returns. The analysis highlights in particular the effects on profitability measures of the huge variations in asset prices observed in recent years in the two countries. The main finding is that taking holding gains and losses into account actually matters for the measurement of corporate profitability over time, this result being particularly clear over the recent period.