The Effect of Limited Liability on the Market Response to Disclosure*

Abstract. We formalize the effects of an earnings disclosure on security prices under an assumption of limited liability. We derive various nonlinear relations between equity prices and earnings under a variety of capital structure assumptions and. if possible, we tie the relations attained to results from the existing empirical literature. We also characterize how debt prices respond to earnings when holders of debt have limited liability. Finally, we analyze how changes in the degree of leverage and conversion features of debt affect the relation between price and earnings.     

Sales Contracts and Production Uncertainty*

The paper examines production under common uncertainty where sales contracts specify penalties for under- or over-production. We locate a trade-off between high productivity and the incurrence of penalties, and identify work incentives appropriate for different cases.     

Tests of Asset Pricing with Time-Varying Expected Risk Premiums and Market Betas

Tests of asset-pricing models are developed that allow expected risk premiums and market betas to vary over time. These tests exploit the relation between expected excess returns and current market values. Using weekly data for 1963 through 1982 on ten common stock portfolios formed according to equity capitalization, a single-risk-premium model is not rejected if the expected premium is time varying and is not constrained to correspond to a market factor. Conditional mean-variance efficiency of a value-weighted stock index is rejected, and the rejection is insensitive to how much variability of expected risk premiums is assumed.     

Costs (Historical versus Current) versus Exit Values

The three alternative methods of accounting are sharply distinguished, the questions regarding those methods are segregated, a criterion - relevance–that will discriminate the methods is identified, and that criterion is applied to the alternatives. The relevance criterion is applied initially in the context of a simple case and subsequently in the context of more complex cases. The exit value system is supported because the exit value of an owned asset is demonstrably relevant to exchange decisions and because it fares no worse than other systems when other criteria suchas additivity, are considered.     

Rent Control,A Costly Redistributive Device? The Case of Canberra*

This paper assesses the consequences of compulsory rent and eviction control which was imposed in Canberra in 1973. A partial equilibrium model is utilized, but the effects of rent control on related markets are also considered. Two ways of estimating market rent are scrutinized, one of which is utilized in an attempt to measure tenants' benefits from the policy. A Hicks' equivalent variation measure of ‘tenants’ surplus' is proposed which takes account of the quantity constraint associated with rent control. This is estimated assuming a Cobb-Douglas utility function. The extent of the costs associated with conferring these benefits is indicated.     

PRICES IN LARGE AND SMALL COOPERATIVES

To test whether small cooperatives can offset economies of scale through volunteer labour inputs, prices charged at five small coops using volunteers and five large coop branches with paid staff were compared with prices at nearby commercial supermarkets. There were more low prices at the smaller coops than at the larger coops and coop shoppers received best values on whole and unprocessed foods and the least price benefits for processed and convenience foods. In interpreting these results, the lesser amount of convenience, the limited product selection, and the work requirement at the smaller cooperatives must be considered.