The baby boom, the baby bust, and the housing market A second look

I re-examine Mankiw-Weil's (MW) claim that house prices will fall 47% by 2007. MW argue that the arrival of the Baby Boom generation at adulthood drove up prices during the 1970s. When the beginnings of the Baby Bust generation matured in the 1980s, prices softened. When this generation arrives in earnest, prices will collapse. I make three points: (1) The regression upon which MW hang their prediction has an implausible -8.1% trend, which drives their prediction. (2) Demand directly influences the rental price; the asset price (MW's variable) is influenced by demand only indirectly. I re-run MW's regression, replacing the asset price with the rental price, and their prediction disappears. (3) Relying on data presented by MW, I show that housing consumption rose during the 1970s, after adjusting for income growth. Just when MW say the asset price of housing was rising, consumers behaved as if the price were falling. Consumers were right: The rental price fell by approximately 20% during the 1970s.     

A comparison of several approximations to the power function of the likelihood ratio test in covariance structure analysis*

In this paper we compare alternative asymptotic approximations to the power of the likelihood ratio test used in covariance structure analysis for testing the fit of a model. Alternative expressions for the noncentrality parameter (ncp) lead to different approximations to the power function. It appears that for alternative covariance matrices close to the null hypothesis, the alternative ncp's lead to similar values, while for alternative covariance matrices far from H_o the different expressions for the ncp can conflict substantively. Monte Carlo evidence shows that the ncp proposed in Satorra and Saris (1985) gives the most accurate power approximations.     

Corporate Leverage and Nondebt Tax Shields: Evidence on Crowding-Out

A negative relationship between corporate leverage and tax shields has been predicted because a large nondebt tax shield reduces the expected value of interest tax savings and lessens the advantage of debt financing. Previous studies, however, have provided inconclusive and contradictory evidence on whether nondebt tax shields crowd-out debt financing. The analysis herein relies on unique constructs of discounted depreciation tax shields and presents evidence that crowding-out does not occur. Furthermore, it is shown that contradictory inferences may result from analysis of annual tax depreciation deductions instead of discounted tax shields. The findings suggest that firms with substantial cash flow from depreciation exploit their higher debt capacity by maintaining a capital structure with significantly more debt than otherwise.     

An interview with Rhonda Anderson. Interview by Connie R. Curran

Nurse executives working in a hospital system experience varied and challenging opportunities to enhance the quality of patient care as well as the success of their professional careers. In this interview, Rhonda Anderson, MPA, RN, CNAA, discusses the hospital system, the managed care environment, and the importance of developing nurse managers.     

A note on securities market response to pension fund termination*

Abstract. A recent article in this journal (Hsieh, Ferris, and Chen, 1990) presents evidence demonstrating that financially distressed firms that terminate overfunded pension plans experience significantly positive abnormal returns, while nondistressed terminating firms experience returns not different from zero. The article concludes from this evidence that the market regards the property rights to excess assets as residing fully with the sponsoring firm prior to termination, particularly when the sponsoring firm is not financially distressed. Accordingly, the reporting requirements of Statement of Financial Accounting Standards (SFAS) No. 88, which require immediate recognition of gains resulting from termination, are inconsistent with the market's view of the ownership rights to excess plan assets. Similarly, the article suggests that the excise tax imposed on asset reversions is “punitive” because property rights to fund assets resided with the company prior to termination. This paper questions three aspects of the Hsieh, Ferris, and Chen article: (1) the plausibility of the theory explaining differential reaction to the announcement to terminate for distressed and nondistressed firms; (2) the effect of the distressed/nondistressed classification criteria, event date specification, and event window length on the results; and (3) the appropriateness of using the empirical results, if reliable, to evaluate accounting treatment or federal tax policy. Résumé. Dans un récent article paru dans cette même publication, Hsieh, Ferris et Chen (1990) soumettaient des faits démontrant que les entreprises en difficulté financière qui mettent fin à un régime de retraite surprovisionné enregistrent des rendements anormaux positifs importants, tandis que les entreprises qui mettent fin à un régime de retraite sans être en difficulté financière enregistrent des rendements qui ne sont pas différents de zéro. De là, les auteurs concluaient que le marché estime que les droits à l'excédent d'actif appartiennent exclusivement à l'entreprise responsable du régime avant la cessation, en particulier lorsque cette dernière n'est pas en difficulté financière. Par conséquent, les exigences de la norme SFAS No. 88 en matière d'information à fournir, qui prévoient la constatation immédiate du produit de la cessation du régime, ne sont pas conformes à la façon de voir du marché relativement aux droits à l'excédent d'actif du régime. De la même façon, selon les auteurs, la taxe d'accise imposée en cas de retour de l'actif est “punitive”, étant donné que les droits à l'actif du régime appartenaient à l'entreprise avant la cessation du régime. Les auteurs s'interrogent ici sur trois aspects de l'article de Hsieh, Ferris, et Chen: 1) la pertinence de la théorie expliquant la réaction marginale à l'annonce de la cessation d'un régime pour les entreprise qui sont en difficulté financière et celles qui ne le sont pas; 2) l'incidence sur les résultats des critères permettant de classer les entreprises comme étant en difficulté financière ou ne l‘étant pas, de la précision de la date de l’événement et de la longueur de la période pré-post relative à l‘événement; et 3) l'opportunité de l'utilisation des résultats empiriques, s'ils sont fiables, pour évaluer le traitement comptable ou la politique fiscale fédérale.     

An Experimental Investigation of Increased Professional Education Requirements*

Abstract. We experimentally investigate the effects of a mandatory increase in education on the market for professional labor services when several service qualities are assumed to exist. We show that when suppliers have insufficient incentives to offer high-quality services in a free market, an increase in mandatory education can improve the coordination of supplier decisions and increase efficiency. If suppliers voluntarily provide a sufficient quantity of high-quality services, an education constraint can have the opposite effect. In both instances, however, an increase in the mandatory level of education can be expected to reduce the price of high-quality services while increasing the price of lower service qualities. Résumé. Les auteurs ont procédé à une analyse expérimentale des conséquences qu'aurait une hausse imposée du niveau d'études sur le marché des services professionnels, si l'on suppose l'existence de plusieurs qualités de services. L'analyse démontre que lorsque les stimulants sont insuffisants pour inciter les fournisseurs à offrir des services professionnels de qualité supérieure dans un marché libre, une hausse imposée du niveau d'études peut améliorer la coordination des décisions des fournisseurs et augmenter l'efficience. Si toutefois les fournisseurs offrent de leur propre chef une quantité suffisante de services de qualité supérieure, le fait d'imposer un niveau d'études supérieur peut avoir l'effet contraire. Dans les deux cas, on peut s'attendre à ce qu'une hausse du niveau d'études obligatoire réduise le prix des services de qualité supérieure tout en augmentant le prix des services de qualité plus faible.     

A longitudinal study of the cause and consequences of changes in diversification in the U.S. pharmaceutical industry 1977–1986

The paper hypothesizes that diversification by firms based in the pharmaceutical industry during the 1977-86 time period was primarily undertaken to reduce the risks associated with being dependent upon a technologically dynamic environment. Consistent with this non-efficiency motive for diversification, declining economic performance is predicted. A longitudinal empirical analysis provides support for these propositions.     

Marketplace and personal space: Investigating the differential effects of attachment style across relationship contexts

An individual's tendencies in purely personal relationships seem to lead to related tendencies in consumer relationships. The following article presents a study that illustrates how individual differences in personal relationship attachment style can be used to predict the likely success of consumer relationships. In addition, it illustrates how the success of consumption versus nonconsumption relationships can be explained by the effect of attachment style on the individual's perception of qualities of the relationship. © 2006 Wiley Periodicals, Inc.