Emerging Evidence of Early Indian Accounting

The paper examines the extant late-eighteenth-century accounting record books of Kantababu, a Bengali property owner and silk trader. These annual records, in part destroyed by white ants and other insects, do not make up a complete set for more than any two Bengali solar years. Yet from the available evidence it is possible to make a case that some elements of the accounting systems used by Kantababu and his clerks have similarities to medieval and later European methods and to eleventh-century methods used by Cairo merchants as evidenced by documents stored in the Genizah of the Old Cairo synagogue.     

IMPACT OF PRICING STRUCTURE SELECTIVITY ON URBAN WATER DEMAND

Interest in demand management policies has intensified as residential water demand has grown in the United States. Using data from the 1984 American Water Works Association (AWWA) survey, the study here provides an empirical analysis of the differences in price elasticities of demand across water pricing block structures and examines these structures' "conservation-orientedness." However, a potential sample selection bias exists. That is, in cities where people are more interested in conservation, utility managers may be more likely to select a rate structure that they believe is conservation-oriented–an increasing block structure, for example. Managers' selectivity bias may cause research results either to understate or to overstate a particular block structure's impact on water conservation. The analysis here corrects for this selectivity bias in estimating water demand and tests whether consumers respond to average prices or to marginal prices. Correcting for selectivity bias involves an explicit analysis of the factors that influence utility managers' selection of rate structures. Estimating water demand under increasing and decreasing block structures suggests that sample selection bias remains a problem worthy of further investigation.     

Not All Related Party Transactions (RPTs) Are the Same: Ex Ante Versus Ex Post RPTs

Related party transactions (RPTs) are potential means for insiders to expropriate outside shareholders via self‐dealing. There are, however, possible benefits to these arrangements for outside shareholders. We find that the overall volume of disclosed RPTs is generally not significantly associated with shareholder wealth as measured by operating profitability or Tobin's Q. However, the results for total RPT volume obscure that ex ante RPTs, transactions that predate a counterparty becoming a related party, are innocuous at worst in terms of their association with operating profitability and significantly positively associated with Tobin's Q whereas ex post RPTs, transactions initiated after a counterparty becomes a related party, are significantly negatively associated with operating profitability. Ex post RPTs also result in significant share price declines when first disclosed and are associated with an increased likelihood that a firm will enter financial distress or deregister its securities. These results are consistent with ex post RPTs serving as means for insiders to expropriate outside shareholders.     

Investor Information Demand: Evidence from Google Searches Around Earnings Announcements

The objective of this study is to investigate factors that influence investor information demand around earnings announcements and to provide insights into how variation in information demand impacts the capital market response to earnings. The Internet is one channel through which public information is disseminated to investors and we propose that one way that investors express their demand for public information is via Google searches. We find that abnormal Google search increases about two weeks prior to the earnings announcement, spikes markedly at the announcement, and continues at high levels for a period after the announcement. This finding suggests that information diffusion is not instantaneous with the release of the earnings information, but rather is spread over a period surrounding the announcement. We also find that information demand is positively associated with media attention and news, and is negatively associated with investor distraction. When investors search for more information in the days just prior to the announcement, preannouncement price and volume changes reflect more of the upcoming earnings news and there is less of a price and volume response when the news is announced. This result suggests that, when investors demand more information about a firm, the information content of the earnings announcement is partially preempted.     

Do Managers of U.S. Defined Benefit Pension Plan Sponsors Use Regulatory Freedom Strategically?

We use historical particularities of pension funding law to investigate whether managers of U.S. corporate defined benefit pension plan sponsors strategically use regulatory freedom to lower the reported value of pension liabilities, and hence required cash contributions. For some years, pension plans were required to estimate two liabilities—one with mandated discount rates and mortality assumptions, and another where these could be chosen freely. Using a sample of 11,963 plans, we find that the regulated liability exceeds the unregulated measure by 10% and the difference further increases for underfunded pension plans. Underfunded plans tend to assume substantially higher discount rates and lower life expectancy. The effect persists both in the cross‐section of plans and over time and it serves to reduce cash contributions. We further show that plan sponsor managers use the freed‐up cash for corporate investment and that credit risk is unlikely to explain the finding.     

Fiscal Policy in a Currency Union at the Zero Lower Bound

This paper constructs a two‐country core–periphery New Keynesian model of a currency union to address the interaction between the objectives of regionally directed fiscal policy constrained by a single currency and the aggregate use of fiscal policy in face of the zero lower bound (ZLB) on policy interest rates. We identify an optimal path of aggregate and relative fiscal policy responses to a negative region‐specific demand shock. Our results show that (i) in a monetary union, the optimal policy response to an asymmetric reduction in demand concentrated in the periphery always entails a relative shift of fiscal expenditure toward the worse‐affected regions, (ii) though no aggregate fiscal response is required outside the ZLB, and (iii) optimal union‐wide fiscal policy is expansionary at the ZLB. Therefore, optimal policy always entails an expansion in the periphery at the ZLB, but the optimal fiscal response in the core regions can be either expansionary or contractionary depending on the parameters of the model. However, (iv) fiscal expansion in the core is warranted if the periphery cannot implement an expansion due to constraints on public spending.     

Indirect Incentives of Hedge Fund Managers

Indirect incentives exist in the money management industry when good current performance increases future inflows of capital, leading to higher future fees. For the average hedge fund, indirect incentives are at least 1.4 times as large as direct incentives from incentive fees and managers’ personal stakes in the fund. Combining direct and indirect incentives, manager wealth increases by at least $0.39 for a $1 increase in investor wealth. Younger and more scalable hedge funds have stronger flow‐performance relations, leading to stronger indirect incentives. These results have a number of implications for our understanding of incentives in the asset management industry.     

Money and Output: Friedman and Schwartz Revisited

More than 50 years ago, Friedman and Schwartz examined historical data for the United States and found evidence of procyclical movements in the money stock, which led corresponding movements in output. We find similar correlations in more recent data; these appear most clearly when Divisia monetary aggregates are used in place of the Federal Reserve's official, simple‐sum measures. When we use information in Divisia money to estimate a structural vector autoregression, identified monetary policy shocks appear to have large and persistent effects on output and prices, with a lag that has lengthened considerably since the early 1980s.