Monopoly, competition and information acquisition

An incumbent monopolist is uncertain about its linear demand, but can acquire public information at a cost. We determine how an entry threat affects the firm's information acquisition. If returns to scale are constant and the state-contingent demands become more dispersed as output increases, then entry reduces information acquisition. If, however, either the incumbent or entrant has increasing returns; or if the state-contingent demands are nonlinear or fail increasing dispersion, then entry can increase information. Finally, entry can hurt consumers. Although entry always increases output, it can decrease information. Consumers sometimes prefer a better informed monopoly to a duopoly.     

A comparison of several approximations to the power function of the likelihood ratio test in covariance structure analysis*

In this paper we compare alternative asymptotic approximations to the power of the likelihood ratio test used in covariance structure analysis for testing the fit of a model. Alternative expressions for the noncentrality parameter (ncp) lead to different approximations to the power function. It appears that for alternative covariance matrices close to the null hypothesis, the alternative ncp's lead to similar values, while for alternative covariance matrices far from H_o the different expressions for the ncp can conflict substantively. Monte Carlo evidence shows that the ncp proposed in Satorra and Saris (1985) gives the most accurate power approximations.     

AN EMPIRICAL INVESTIGATION INTO THE IMPACT OF PROFIT SHARING SCHEMES OF EXECUTIVIES ON THE CONTENT OF CORPORATE SUBMISSIONS ON PROPOSED ACCOUNTING STANDARDS

This paper examines the comments submitted by UK companies on 20 proposed accounting standards to test the hypotheses that executives favor standards that increase, or dampen the variance of, accounting profit numbers on which their incentive remuneration is based. Test results were generally as hypothesised but only the profit variance outcomes were statistically significant. Allowing for political environment changes affected only the profit variance results. There was no evidence that the relative monetary size of bonus payments was a significant lobbying factor. No significant differences were found between the lobbying preferences of companies with or without executive incentive schemes.     

Do Small Banks have an Advantage in Lending? An Examination of Risk-Adjusted Yields on Business Loans at Large and Small Banks

Consolidation in the banking industry has sparked concern about the survival of small banks, particularly as it relates to the availability of credit to small businesses. However, if small banks have an advantage in processing credit information, compared to large banks, they should continue to survive in a competitive environment. We evaluate risk-adjusted commercial loan yields (gross yields less net charge-offs and the risk-free rate of return) at small and large banks for the period of 1996 through 2001. Our primary finding is that, after controlling for market concentration, cost of funds, and a variety of other factors that might influence yields, smaller banks earn greater risk-adjusted yields than larger banks. This result suggests that small banks make better choices from the available small business loans and is consistent with the notion that these banks have an information advantage in evaluating credit.     

Do Mothers Matter? A Comparison of Models of the Influence of Mothers' and Fathers' Educational and Occupational Status on Children's Educational Attainment

The first objective of this article is to clarify which model best captures the structure and trend of the influence of social origin on children's education. The second objective is to analyse how general conclusions on historical trends in educational reproduction change if we add mother's status background to the model. Six contrasting hypotheses are derived fromthe body of literature dealing with models on families' socioeconomic status. All hypotheses are translated into empirical models and their explained variance is compared. A pooled data set is used that contains data from the Netherlands, West Germany, and the USA. The Modified Dominance Model, that distinguishes the influence of the highest from thelowest status parent, has the best model fit. Regarding the second objective we see that adding the mother's influence to that of the father's does not change general conclusions on trends in educational reproduction. Over time the influence of both parents decreases continuously. However, the influence of the mother's education and occupational status on children's educational attainment is substantive.     

The Determinants of Enterprise Risk Management: Evidence From the Appointment of Chief Risk Officers

Enterprise risk management (ERM) has captured the attention of risk management professionals and academics worldwide. Unlike the traditional "silo-based" approach to corporate risk management, ERM enables firms to benefit from an integrated approach to managing risk that shifts the focus of the risk management function from primarily defensive to increasingly offensive and strategic. Despite the heightened interest in ERM, little empirical research has been conducted on the topic. This study provides an initial attempt at identifying the determinants of ERM adoption. We construct a sample of firms that have signaled their use of ERM by appointing a Chief Risk Officer (CRO) who is charged with the responsibility of implementing and managing the ERM program. We use a logistic regression framework to compare these firms to a size- and industry-matched control sample. While our results suggest a general absence of differences in the financial and ownership characteristics of sample and control firms, we find that firms with greater financial leverage are more likely to appoint a CRO. This finding is consistent with the hypothesis that firms appoint CROs to reduce information asymmetry regarding the firm's current and expected risk profile.