WAGE DETERMINATION UNDER NON-LINEAR TAXES: ESTIMATION AND AN APPLICATION TO PANEL DATA

This paper studies wage determination under piecewise lineartaxes in a unionised labour market. The purposes of the paperare to model how piecewise linear taxation affects the choiceset of the union, and to take this information into accountin the estimation. The empirical application is based on paneldata. Piecewise linear taxes necessitates formal assumptionsabout the sources of randomness, and we find that both unobservedheterogeneity and measurement errors in the wage rate are importantto consider in the estimation. We also find that taxes are likelyto have a non-negligible impact on the (pre-tax) wage rate.     

Hedge Fund Activism, Corporate Governance, and Firm Performance

Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.     

CAP Forum on Enron: Former Audit Firm Personnel as CFOs: Effect on Earnings Management*

Corporate hiring of former audit personnel to fill key financial positions is a practice that has attracted attention from the media, the accounting profession, and regulators. The concern is that the former external auditor who now holds a key position with the client may be able to circumvent the audit or exert pressure on the audit team and adversely influence audit quality. We compare a sample of 172 test companies that appointed to the position of chief financial officer (CFO) personnel who are former employees of the companies' auditors, with a control sample of companies that appointed new CFOs who were not affiliated with their auditors. We investigate whether the level of discretionary accruals is greater for the test sample compared with the control sample during the two years following appointment of the CFO. Both univariate and multivariate results for signed discretionary accruals suggest some support for the hypothesis that firms with affiliated CFOs are associated with greater earnings management than firms with unaffiliated CFOs. Furthermore, the results for signed discretionary accruals suggest that the association is stronger for nonpartners who moved from the audit firm to the client with little or no time gap. On average, the results for absolute discretionary accruals do not suggest differences in earnings management between affiliated and unaffiliated CFOs. However, they do indicate some earnings management relative to unaffiliated CFOs by CFOs who had little or no time gap between leaving the audit firm and joining the client firm, although at a weaker level of significance.     

IMPACTS OF PRIVATISATION POLICY IN EUROPE

This paper examines the economic implications of the privatisation that has been occurring in Europe. Different sectors and different countries have developed separately, but policymakers can learn common lessons. Considerable experience of privatisation has produced a mounting body of empirical evidence. Developing more powerful analytical tools also permits greater rigour in studying the behaviour of newly privatised undertakings. This paper examines the nature of privatisation processes and looks at the forms of adjustment to regulatory regimes that have occurred to accommodate the newly privatised undertakings. It draws upon new empirical evidence and previous econometric studies to consider privatisation's efficiency effects, especially regarding technical or X-efficiency.¹