How Do Quasi‐Random Option Grants Affect CEO Risk‐Taking?

We examine how an increase in stock option grants affects CEO risk‐taking. The overall net effect of option grants is theoretically ambiguous for risk‐averse CEOs. To overcome the endogeneity of option grants, we exploit institutional features of multiyear compensation plans, which generate two distinct types of variation in the timing of when large increases in new at‐the‐money options are granted. We find that, given average grant levels during our sample period, a 10% increase in new options granted leads to a 2.8% to 4.2% increase in equity volatility. This increase in risk is driven largely by increased leverage.     

The Allowance for Uncollectible Accounts,Conservatism, and Earnings Management

We study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart, bad debt expense. We find that the allowance is conservative and that it has become more conservative over time. Conservatism may, however, facilitate earnings management. We find that firms manage bad debt expense downward (and even record income‐increasing bad debt expense) to meet or beat analysts’ earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense. Further, we find that firms manage bad debt expense downward by drawing down previously recorded over‐accruals of bad debt expense that have accumulated on the balance sheet. An implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings.     

The Federal Home Loan Bank System: The Lender of Next‐to‐Last Resort?

The Federal Home Loan Bank (FHLB) System is a large cooperatively owned government‐sponsored liquidity facility that lends predominately to U.S. depository institutions. This paper documents the significant role played by the FHLB System at the outset of the recent financial crisis and provides evidence on the uses of FHLB funding by member banks and thrifts during that time. We then compare lending activity by the FHLB System and the Federal Reserve during 2007 and 2008, discuss the types of institutions seeking government‐sponsored liquidity at various times, and identify the trade‐offs faced by borrowers eligible to tap liquidity from both facilities.     

Psychological and Demographic Characteristics as Determinants of Women's Health Insurance Coverage

The study examines the role of demographic and psychological characteristics in determining women's healthcare insurance coverage. To assess the role of these characteristics, data from the National Longitudinal Survey of Labor Market Experience (NLSLME), Young Women's Cohort, were used considering both a married and not married subsample. Overall, the results indicate that in addition to the influence of previously examined demographic characteristics, the role of psychological attributes is substantial particularly for the not married subsample. Findings suggest that in addition to policy aimed at increasing health insurance coverage by way of considering demographic characteristics policy should also consider psychological attributes.     

German Employers’ Inputs to Employee Skills Development

Using organizational level survey data, this article analyzes larger German private employers’ inputs to employee skills development, to test the theory that unions and employers’ associations raise employer incentives for training. Large German employers maintained their overall contribution between 1995 and 1999. Indicative data for 2004 suggest that this has continued, yet neither membership of employers’ associations nor high union densities influenced it.     

Managerial Overconfidence and Accounting Conservatism

Overconfident managers overestimate future returns from their firms’ investments. Thus, we predict that overconfident managers will tend to delay loss recognition and generally use less conservative accounting. Furthermore, we test whether external monitoring helps to mitigate this effect. Using measures of both conditional and unconditional conservatism respectively, we find robust evidence of a negative relation between CEO overconfidence and accounting conservatism. We further find that external monitoring does not appear to mitigate this effect. Our findings add to the growing literature on overconfidence and complement the findings by Schrand and Zechman [2011] that overconfidence affects financial reporting behavior.     

DEMAND RESPONSE TO COST SHARING UNDER MANAGED HEALTH CARE

We use 1996 Medical Expenditure Panel Survey to examine the demand response of ambulatory medical services to demand-side cost sharing under managed health care and find that demand response to a coinsurance rate is less than that under conventional plans. To address the selection problem, only respondents who were offered a single insurance plan from private establishments are studied. Our results show that managed care, relying on different approaches to ration, has blunted demand response. This suggests that in a managed care context, increasing demand-side cost sharing will reduce costs to plans mainly by shifting costs to enrollees. ( JEL I11)