Do E‐verify mandates improve labor market outcomes of low‐skilled native and legal immigrant workers?

We examine the impact of the 2007 Legal Arizona Workers Act (LAWA) on employment outcomes of low‐skilled legal workers. We use the synthetic control method to select a group of states against which the labor market trends of Arizona can be compared. Our results suggest that contrary to its intent, LAWA does not appear to have improved labor market outcomes of legal low‐skilled workers who compete with unauthorized immigrants, the target of the legislation. In fact, we find some evidence of diminished employment and increased unemployment among legal low‐skilled workers in Arizona. These findings are concentrated on the largest demographic group of workers—non‐Hispanic white men. While they are less likely to find employment, those who do have on average higher earnings as a result of LAWA. The pattern of results points to both labor supply and labor demand contractions due to LAWA, with labor supply dominating in terms of magnitude.     

Federal Reserve Communications and Emerging Equity Markets

Work on the impact of U.S. monetary policy on emerging financial markets mostly focuses on official target rate announcements; empirical evidence using data on informal communication channels, such as speeches, is scant. Employing a unique data set covering formal and informal communication channels in a generalized autoregressive conditional heteroskedasticity model framework, we provide comprehensive evidence on the effects of U.S. monetary policy on 17 emerging equity market returns over the period 1998–2009. We find, first, that both monetary policy actions and communications have a significant impact on market returns. Second, target rate change surprises are an important driver of emerging market returns. However, informal communications—particularly when taking into account their higher frequency—have a larger (cumulative) influence on returns than do target rate surprises. Third, during the recent financial crisis, central bank communication played an even more pronounced role. Finally, American emerging markets react more to communications than do non‐American markets.     

NO‐ARBITRAGE ONE‐FACTOR MODELS OF THE SOUTH AFRICAN TERM STRUCTURE OF INTEREST RATES

Short‐term interest rate processes determine the term structure of interest rates in an arbitrage‐free market and are central to the valuation of interest rate derivatives. We obtain parameter estimates and compare the empirical fit of alternative one‐factor continuous‐time processes for the South African short‐term interest rate (and hence of arbitrage‐free term structure models) using Gaussian estimation methods. We find support only for diffusions where the interest rate volatility is moderately sensitive to the level of the interest rate. Other common models with restrictions that either preclude this effect, or restrict it to be too high, do not fit the data. Differences in the specification of the drift function have no evident effect on model performance.     

Does Terrorism Affect the Stock‐Bond Covariance? Evidence from European Countries

Using daily stock and bond returns data from four European countries—France, Germany, Spain, and Great Britain—that have been the victims of significant terrorist activity, this study addresses the issue of whether transnational and/or domestic terrorist attacks have affected in any significant manner the time‐varying stock–bond covariance, their returns, and their variances. Stock and bond markets can be influenced and determined not only by the usual array of macroeconomic factors but also by security shocks, such as a terrorist incident, that have the potential to affect investors' sentiment and portfolio allocation decisions. The issue at hand is addressed using a VAR(p)‐GARCH(1,1)‐in‐mean model, and the results reported herein indicate that terrorist attacks trigger a flight‐to‐safety effect primarily in France and Germany and to a smaller degree in Great Britain and Spain.     

Are Investors Misled by “Pro Forma” Earnings?*

This paper uses stock market data to investigate the popular claim that investors are misled by the “pro forma” earnings numbers conspicuously featured in the press releases of some U.S. firms. We first document the frequency and magnitude of pro forma earnings in press releases issued during June through August 2000, and describe the 433 firms that engaged in this financial disclosure strategy. Our test period predates public expressions of concern by trade associations and regulators that pro forma earnings may mislead investors and the subsequent issuance of guidelines and rules on the disclosure of pro forma earnings numbers. We use two complementary approaches to determine whether the share prices that investors assign to pro forma firms are systematically higher than the prices assigned to other firms. Our market‐multiples tests for differences in price levels find some evidence suggesting that pro forma firms may be priced higher than firms that do not use the disclosure strategy. This apparent overpricing is not, however, related to the pro forma earnings numbers themselves. Our narrow‐window stock returns tests reveal no evidence of a stock return premium for pro forma firms at the quarterly earnings announcement date. Collectively, the results cast doubt on the notion that investors are, on average, misled by pro forma earnings disclosures despite the widespread concern expressed in the financial press and by regulators.     

The compulsory public pension and the demand for life insurance: the case of Sweden, 1884–1914

We employ cost‐of‐living surveys, business archives, and firm data to examine the impact of the compulsory pension on the demand for life insurance in Sweden from 1884 to 1914—a period that covers the implementation of the first public compulsory old‐age pension reform and the take‐off of industry life insurance. As predicted on the basis of the contemporary literature on crowding‐out effects, we find that the compulsory pension reduced the demand for life insurance. Our panel‐data analysis of lapse rates on insurance policies shows a significant crowding‐out effect of pension payments. We conclude that the introduction of the general compulsory pension had a crowding‐out effect on households’ holdings of insurance policies.     

Do Monetary Policy Announcements Affect Exchange Rate Returns and Volatility of Returns? Some Evidence from High‐Frequency Intra‐Day South African Data

This paper examines the temporal effect of domestic monetary policy surprises on both returns and volatility of returns of the South African rand/U.S. dollar exchange rate. The analysis in this “event study” proceeds using intra‐day minute‐by‐minute exchange rate data, repo rate data from the South African Reserve Bank's scheduled monetary policy announcements, and market consensus repo rate forecasts. A carefully selected sample over the period August 2003 to November 2017 ensures that the change in monetary policy is exogenous to the exchange rate. We find statistically and economically significant responses in intra‐day high‐frequency South African rand/U.S. dollar exchange rate returns and volatility of exchange rate returns to domestic interest rate surprises, but anticipated changes have no bearing on exchange rate returns and their volatility. The empirical results also indicate that there is an instantaneous response of the rand/dollar exchange rate to monetary policy surprises and that monetary policy news is an important determinant of the exchange rate until at least 42 minutes after the pronouncement – suggesting a high degree of market “efficiency” in its mechanical sense (although not necessarily in the deeper economic‐informational sense) in processing this information. Essentially, the asymmetric GARCH results exhibit no leverage effects – positive and negative information shocks have symmetric effects on conditional variance.     

To Guide or Not to Guide? Causes and Consequences of Stopping Quarterly Earnings Guidance

In recent years, quarterly earnings guidance has been harshly criticized for inducing “managerial short‐termism” and other ills. Managers are, therefore, urged by influential institutions to cease guidance. We examine empirically the causes of such guidance cessation and find that poor operating performance — decreased earnings, missing analyst forecasts, and lower anticipated profitability — is the major reason firms stop quarterly guidance. After guidance cessation, we do not find an appreciable increase in long‐term investment once managers free themselves from investors’ myopia. Contrary to the claim that firms would provide more alternative, forward‐looking disclosures in lieu of the guidance, we find that such disclosures are curtailed. We also find a deterioration in the information environment of guidance stoppers in the form of increased analyst forecast errors and forecast dispersion and a decrease in analyst coverage. Taken together, our evidence indicates that guidance stoppers are primarily troubled firms and stopping guidance does not benefit either the stoppers or their investors.     

Sentimental Preferences and the Organizational Regime of Betting Markets

We analyze the price impact of sentimental bettor preferences within a bookmaker betting market. A theoretical model demonstrates that, under reasonable assumptions about the nature of demand in a market with strong competition, the bookmaker will offer lower prices for bets with comparatively stronger demand. Using a sample of more than 16,000 English soccer matches we find evidence that more favorable odds are extended to bets on more popular clubs and that this effect is amplified on weekends when sentimental bettors face lower opportunity costs to wager. Our findings help to explain why the market for sports gambling operates as a hybrid structure with bookmakers able to attract a considerable share of the betting volume, although identical contracts are traded on exchange markets at lower costs: the organizational design of a quote‐driven market enables the dealer to take advantage of sentimental bettor preferences.     

Liquidity Crises and Corporate Cash Holdings in Chile

This paper addresses the heterogonous effects of adverse liquidity shocks on corporate cash holdings in an emerging market. We use a large panel dataset with quarterly financial information for Chilean firms during the period 1996–2009. We find three main results. First, liquidity crises have had a negative and economically significant effect on cash holdings, but mainly for small firms; medium‐sized and large firms have not been affected by liquidity crises. Second, liquidity crises reduce the ability of firms to adjust to optimal cash holdings. Finally, medium‐sized firms are less able to adjust cash holdings compared to small and large firms.     

Gender,productivity, and the nature of work and pay: evidence from the late nineteenth‐century tobacco industry

Women have typically been paid less than men throughout history. We investigate earnings in Swedish cigar making around 1900. Strength was unimportant, yet the gender wage gap was large. Differences in characteristics, such as age and experience, and different jobs within firms, account for two‐thirds of the gap overall, and the entire gap for piece‐rate workers. Firms were as willing to employ women as men in the better‐paying piece‐rate section, and women were willing to take those jobs. In contrast, discrimination was extensive in the time‐rate section. Men in this section benefited from greater outside opportunities and customary wages elsewhere. Theory holds that labour market discrimination will reduce profitability, and make firm survival harder, a proposition that has never been tested historically. We find that cigar firms that feminized their workforces most extensively were most likely to survive. Product market competition prevented firms employing (overpaid) men to any great extent. We argue that economic historians must interpret industry‐specific gender wage differentials in the context of workers' outside opportunities, and in the context of product markets, which can—and in this case did—limit firms' room for manoeuvre.     

Equity,Bonds, Institutional Debt and Economic Growth: Evidence from South Africa

We examine the finance‐growth nexus in South Africa accounting for the role of bond markets, stock markets, and bank and non‐bank financial intermediaries using a vector autoregressive technique. Extant empirical literature has largely accounted for only banks and stock markets, ignoring bond market and non‐bank financial intermediaries. We find that bond market development affects economic growth in South Africa, and no similar effect is observed for the bank and non‐bank financial intermediaries and the stock market. Our finding shows that examination of individual elements of the financial system is important in understanding the unique effect of each on growth. The observation that the bond market rather than stock market, bank and non‐bank institutions promote economic growth in South Africa induces an intriguing question as to what unique roles bond markets play that the intermediaries and equity market are unable to play.     

School district consolidation: Market concentration and the scale‐efficiency tradeoff

Consolidation is often proposed as a strategy for increasing school district quality without increasing educational funding. However, if consolidation reduces competition in the local school market and reduces efficiency, any savings from exploiting economies of scale may be lost to increased inefficiency. We use a stochastic cost function to investigate these effects for districts in Texas. We find important economies of scale, but we also find that increased market concentration leads to increased cost inefficiency. Finally, we illustrate the practical importance of these two potentially offsetting factors in a simulation that considers consolidating Texas school districts to county‐level districts. We find that failure to consider the effect on competition can lead to large overestimates of the benefits of consolidation.     

A mirror of history: China's bond market, 1921–42

This article provides a quantitative assessment of contemporary beliefs about historical events by econometrically identifying ‘break points’ in China's domestic bond market from 1921 to 1942. We find that these ‘break points’ usually coincided with the events highlighted by the Shanghai Newspaper—an influential daily newspaper produced during the time of the Republic of China. These events are also generally considered to be crucial by historians—for example, the Japanese invasion of Manchuria and the outbreak of the Second Sino‐Japanese War. However, some events to which historians attach great importance, such as the conflicts between Nationalists and Communists in the 1930s, were not reflected in the bond market and did not attract much media attention. Some events, such as the Sino‐Japanese ceasefire in Tanggu in 1933, were thought to be crucial by contemporaries, but have been downplayed by later observers.     

Creditors’ and Shareholders’ Reporting Demands in Public Versus Private Firms: Evidence from Europe*

In this study we investigate whether the importance of accounting information in contracting and communication with shareholders and creditors affects earnings timeliness in publicly disclosed general‐purpose financial statements. To operationalize the relationship between timeliness demands and the importance of accounting information to shareholders and creditors, we compare the (asymmetry in) earnings timeliness of public firms with that of private firms. We attribute public versus private firm differences in timeliness to shareholders’ demands when a country’s institutions provide strong investor protection. Similarly, we attribute these differences to creditors’ demands when the institutions provide strong creditor protection. Our analysis of public and private firms in 13 Western European countries suggests that creditors and shareholders have different timeliness demands. In particular, we find that the public versus private firm difference in asymmetric timeliness is not associated with a country’s degree of investor protection but positively associated with a country’s degree of creditor protection. The results further suggest that shareholders demand symmetric rather than asymmetric timeliness. An important implication of our study is that general‐purpose financial statements are responsive to creditors’ reporting demands, which contrasts with the idea that these — primarily private — creditors would use special‐purpose reports.     

Does School Lunch Fill the “SNAP Gap” at the End of the Month?

This article investigates the relationship between the timing of Supplemental Nutrition Assistance Program (SNAP) benefit payments and participation in school lunch and breakfast using the National Household Food Acquisition and Purchase Survey. An event study approach examines participation over the five‐day window before and after the SNAP payment. We find that school lunch participation decreases by 17–23 percentage points immediately after the SNAP payment among 11–18 year olds while breakfast drops by 19–36 percentage points. The decline begins the day prior to payment. We find no effects for 5–10 year olds. Models examining participation over the full SNAP month using individual fixed effects yield similar findings. Among teenagers, participation in school lunch and breakfast decline in the first two weeks of the SNAP month, increasing afterward. Non‐school meals show the opposite pattern. Overall, results indicate SNAP households rely more on school lunch and breakfast toward the end of the SNAP month.     

Interest Groups and the “Rise and Decline” of Growth

Interest groups are known to exert a sclerotic impact on mean growth, à la 1982 . It is unknown, however, what impact (if any) groups exert on the volatility of growth—an important hindrance to development. In this article, we first consider what impact we should expect Olson groups to have on the volatility of growth. We then estimate the relation between groups and growth volatility in a cross‐country panel, using system generalized method of moments. The findings indicate that groups are associated with growth stability. In addition, the findings suggest that interest groups may be a source of the stability observed in democracies.     

Modern secondary education and economic performance: the introduction of the Gewerbeschule and Realschule in nineteenth‐century Bavaria†

Do new school types focusing on practical and business‐related knowledge lead to increased economic performance? To analyse this question, this article examines the introduction of two types of modern secondary education, the Gewerbeschule and its successor, the Realschule, in nineteenth‐century Bavaria. Since the opening of these schools is arguably endogenous—as it was mainly the large, prosperous cities that opened one—the estimated treatment effect capturing the economic influence of the Gewerbeschule/Realschule will lead to biased results. To alleviate this bias, propensity score matching is adopted to compare relatively similar counties with and without these schools. Using historical county‐level data on tax revenues, business formations, employment structure, and patent holdings, ordinary least squares regression analysis shows that the opening of a modern secondary school is in general positively associated with economic performance several years later.     

Firm Productivity,Innovation, and Financial Development

How do firm‐specific actions—in particular, innovation—affect firm productivity? What is the role of the financial sector in facilitating higher productivity? Using a rich firm‐level data set, we find that innovation is crucial for firm performance as it directly and measurably increases productivity. The impact of innovation on productivity is larger in less‐developed countries. Evidence of financial sector development influencing the innovation‐productivity link is weak, but the effect is difficult to identify due to correlation between indicators of a country's financial and nonfinancial development. Furthermore, we find evidence that the innovation effect on productivity is more significant for high‐tech firms than for low‐tech firms.     

Why We Should Stop Being Surprised that Lightly Regulated Markets Fall Short of the SEC's Goals for Market Quality: A Discussion of “Private Intermediary Innovation and Market Liquidity”

The stated goals of the SEC are to protect investors, maintain orderly markets and facilitate capital formation. These goals can be achieved with very light regulation if, as assumed by traditional economic theory, investors process information costlessly and protect themselves from informational disadvantages, and firms optimally balance the costs and benefits of committing to make their reports reliable. A growing body of research demonstrates that light regulation fails to achieve the SEC's goals, because investors find information processing costly and fail to protect themselves. After reviewing theory and prior evidence, I discuss new lessons learned from Jiang, Petroni, and Wang ( 2016 ), who show that Pink Sheets^® reduced the liquidity of firms with low reporting quality and increased the liquidity of firms with high reporting quality, merely by highlighting the quality of their listed firms’ disclosure. While the Pink Sheets^® innovation might have occurred through many causal channels, all of them entail a violation of costless processing and self‐protection, and lead to the conclusion that this lightly regulated market did not initially meet the stated goals of the SEC. I conclude by arguing that markets can achieve the SEC's goals only if they exhibit a particularly strong version of “dynamic” market efficiency, which requires that each individual trade on the path to even incomplete revelation occurs at the then‐optimal price. Because dynamic efficiency is unlikely, we should stop being surprised to see evidence that lightly regulated markets fall short on key dimensions. Instead, we should use our well‐developed understanding of market inefficiency to guide regulation.