New Findings Regarding Day-of-the-Week Returns over Trading and Non-Trading Periods: A Note

This paper decomposes daily close to close returns into trading day and non-trading day returns. We discover that all of the average negative returns from Friday close to Monday close documented in the literature for stock market indexes occurs during the non-trading period from Friday close to Monday open. In addition, average trading day returns (open to close) are identical for all days of the week. January/firm size/turn-of-the-year anomalies are shown to be interrelated with day-of-the-week returns.     

The Last American Shoe Manufacturers: Decreasing Productivity and Increasing Profits in the Shift from Piece Rates to Continuous Flow Production*

This study examines the economic effects of changes in a group of managerial policies, a key element of which was the switch from piece rate to time rate modes of compensation, in one of the last remaining firms in the U.S. shoe industry in the 1990s. The firm, which we call “Big Foot” (BF), entered the 1990s using a set of human resource policies that included piece rates to motivate workers, which induced relatively high productivity. But, faced with severe foreign competition, it switched to time rates and associated managerial policies, which produced higher profits despite lowering productivity. The reason profits increased is that time rate‐related labor management policies reduced labor and other costs by enough to offset a fall in productivity. Data for shoe manufacturing from the Longitudinal Research Data (LRD) files of the U.S. Census show, more generally, that establishments with high labor costs and relatively many nonproduction workers, both of which are associated with management policies that often include piece rates, had lower rates of survival in this period than other establishments. Our finding that labor management policies associated with piece rate compensation can raise productivity but lower profitability is consistent with the broad decline of piece rate pay in advanced economies.     

ARE JAPANESE INVESTORS TAKING THEIR MONEY HOME?

Only recently has Japan become the world's largest investor. Yet stories of investors taking their money home already have developed. Are Japanese investors taking their money home? Would it matter? To answer these questions, one must examine the economic, regulatory, and political motivations guiding Japanese investments. So far, shifts in the flows of funds have not been sensational, but by no means should one dismiss the shifts as irrelevant. A tightening of liquidity at home and a pricking of the bubble's in Japan's equity and land markets have altered the calculus of returns on overseas investments. Tims, the annual increments to Japan's overseas holdings, which already had shrunk in 1990, should stay low in the coming years. Tlie impact on global financial markets will depend crucially on whether new flows from Japan fall faster than new demands for funds outside of Japan.     

An Examination of Moral Development within Public Accounting by Gender,Staff Level,and Firm*

Abstract. This study extends prior research on the average level of moral development in public accounting by examining five large accounting firms and three staff levels. The research is important because it highlights the need to include auditors from several firms in research designs, provides evidence of differences in moral development among public accounting firms, and profiles the professions' average level of moral development for three levels. The data are from 494 managers and seniors (204 females and 290 males) from five Big Six firms. Using the Defining Issues Test (Rest 1979a) to measure moral development, several results were noted. First, the results indicate a difference in the average level of moral development among firms, suggesting that use of subjects from only one firm inhibits the generalizability of findings regarding moral development. Second, female managers are at a significantly higher average level of moral development than male managers. In fact, the average scores for male managers fell between those expected for senior high school and college students. The data suggest that a greater percentage of high-moral-development males and low-moral-development females are leaving public accounting than their respective opposites. These results indicate that the profession has retained, through advancement, males who are potentially less sensitive to the ethical implications of various issues. The analysis also indicates that Kohlberg's (1969) theory of moral development is not biased towards the thought processes of males because female auditors did not score lower on the Defining Issues Test.     

Do Changes in Dividends Signal the Future or the Past?

Many dividend theories imply that changes in dividends have information content about the future earnings of the firm. We investigate this implication and find only limited support for it. Firms that increase dividends in year 0 have experienced significant earnings increases in years ?1 and 0, but show no subsequent unexpected earnings growth. Also, the size of the dividend increase does not predict future earnings. Firms that cut dividends in year 0 have experienced a reduction in earnings in year 0 and in year ?1, but these firms go on to show significant increases in earnings in year 1. However, consistent with Lintner's model on dividend policy, firms that increase dividends are less likely than nonchanging firms to experience a drop in future earnings. Thus, their increase in concurrent earnings can be said to be somewhat “permanent.” In spite of the lack of future earnings growth, firms that increase dividends have significant (though modest) positive excess returns for the following three years.     

WHOSE LOSSES COUNT IN NATURAL RESOURCE DAMAGES?

This article examines economic and legal constraints that determine whose losses are included in natural resource damages as a result of an oil spill or hazardous-substance release. For example, the article describes the circumstances under which use losses experienced by young children would not be included in natural resource damages. With respect to nonuse damages, the article advocates excluding the expressed losses of people who have no knowledge of the specific natural resources affected by a spill/release and who are unaware that the natural resources were injured. In the absence of such knowledge and awareness, these people could not have experienced a welfare loss. Finally, the article discusses legal constraints on whose losses count in natural resource damages with respect to statutory exclusions, public versus private uses of natural resources, uses of natural resources by foreigners, and damages in the absence of injuries.     

TOTAL TRANSACTION MEASURES AND M1 GROWTH

This paper examines the role of measures of total transactions in explaining growth in the demand for Ml money balances. Fueled by strong growth in financial activities, total transactions have grown rapidly relative to nominal GNP, especially since 1979. In an aggregate Ml equation, we find financial transaction measures to be of some additional help in explaining Ml growth, beyond the ability of GNP to do so alone. A disaggregated approach shows more promise, with transaction measures improving the explanation of demand deposit growth.     

On Valuing American Call Options with the Black-Scholes European Formula

Empirical papers on option pricing have uncovered systematic differences between market prices and values produced by the Black-Scholes European formula. Such “biases” have been found related to the exercise price, the time to maturity, and the variance. We argue here that the American option variant of the Black-Scholes formula has the potential to explain the first two biases and may partly explain the third. It can also be used to understand the empirical finding that the striking price bias reverses itself in different sample periods. The expected form of the striking price bias is explained in detail and is shown to be closely related to past empirical findings.     

Evaluation of Welfare Change in Quantity-Constrained Regimes*

There are many circumstances where individuals are subject to constraints other than income and prices. Evaluation of welfare change from a price-taking position to a quantity-constrained position presents special problems. While remaining firmly in the partial-equilibrium tradition, indifference curves in the price-quantity space are applied to the identification of an equivalent variation. a modified Marshallian measure and a compensating variation in quantity-constrained situations. These measures satisfy the condition of CV < MS < EV for a normal good. A Marshallian measure that has been used—the ‘simple Marshallian measure’—is shown to have a considerable drawback.