Throwing Good Money After Bad? Cash Infusions and Distressed Real Estate

When a leveraged real estate project experience cash-flow problems, the owner must either inject additional cash or default on the mortgage. We show that it is not optimal for the owner to default as soon as net cash flow becomes negative. Surprisingly, the owner can expropriate some of the mortgage lender's wealth by injecting cash and continuing to pay interest. When the owner has cash constraints, outside investors may be able to extract significant economic rents by financing distressed real estate projects. These results have interesting implications for mortgage lending and the pattern of real estate transaction volume.     

Transformed Youth Justice?

Of the ten pledges offered by New Labour in their 1997 Election Manifesto, one concerned crime. It contained a specific youth justice commitment: 'We will be tough on crime and tough on the causes of crime, and halve the time it takes persistent juvenile offenders to come to court'. In the 2001 Manifesto, Labour reported that they had substantially achieved this pledge: crime was falling and'The time from arrest to sentence for persistent young offenders is down from 142 days to 89 days—on track to halve the time within the five years promised in 1997'. Youth justice had been reformed and the Government would move on: it would build on the youth justice reforms by tackling provision for 18- to 20-year-olds. This article addresses four issues: why did youth justice reform figure prominently in New Labour's 1997 plans; in what respects has the system of youth justice been reformed; have the reforms been a success; and what does the immediate future for youth justice hold?     

The Quiet Period Goes out with a Bang

We examine the expiration of the IPO quiet period, which occurs after the 25^th calendar day following the offering. For IPOs during 1996 to 2000, we find that analyst coverage is initiated immediately for 76 percent of these firms, almost always with a favorable rating. Initiated firms experience a five-day abnormal return of 4.1 percent versus 0.1 percent for firms with no coverage. The abnormal returns are concentrated in the days just before the quiet period expires. Abnormal returns are much larger when coverage is initiated by multiple analysts. It does not matter whether a recommendation comes from the lead underwriter or not.     

VOLUME AND R2: A FIRST LOOK

Roll (1988) reports that when days on which public announcements occur are excluded from a regression of stock returns on market returns, the R²s are largely unaffected. To explain his findings, Roll suggests that much of the firm-specific movements in common stocks may be a result of private information or occasional trading frenzy. As a test of Roll's conjecture, volume is used in this study as a proxy to capture the impact of firm-specific information and irrational trading. If Roll's conjecture is correct, the R² should rise when high-volume days are excluded from a regression of stock returns on market returns. The results presented here are consistent with that prediction, but they are not strong.     

Greening the local economy

While there has been a growing awareness of environmental issues in recent years, there has been little attempt to integrate environmental policy with economic development issues. This paper argues that this is an issue which should be addressed by local authorities and suggests ways in which local authorities could begin to move towards sustainable local economic development.     

Do Demand Curves for Small Stocks Slope Down?

Stocks added to the S&P 500 generally experience positive abnormal returns following the announcement. Several competing explanations exist for this reaction, but small sample sizes and other issues make it difficult to distinguish among them. We examine this subject using the small‐cap Russell 2000 index, which has several advantages over the S&P 500 in this context. Our primary finding is that stocks added to or deleted from the Russell 2000 experience significant changes in stock price and trading volume, but the effect is transitory. The results support the price pressure hypothesis.     

Entry, Expansion, and Intensity in the US Export Boom, 1987–1992

US exports grew at 10.3% per year from 1987 to 1992, far faster than the economy as a whole. This paper examines sources of the manufacturing export boom, including entry, firm expansion, and export intensity. Most of the increase in exports came from increasing export intensity at existing exporters rather than from new entry into exporting. The small role of entry relative to export intensity offers support for the importance of sunk costs in the export market. Changes in exchange rates and rises in foreign income drove most of the export increase, while plant productivity increases played a smaller role.