DO FIRMS SEEK A TARGET BOARD STRUCTURE? EVIDENCE FROM THE POST‐SOX PERIOD

We investigate whether firms restructure board composition to align with changes in their contracting environment. Board size and independence increase with firm complexity, consistent with theoretical predictions. However, the hypothesized negative relation between board independence and information costs is evident only for firms completing acquisitions. Furthermore, board independence increases to offset increases in CEO power in a sample of firms making acquisitions, but decreases when CEO power increases in a large cross‐section of firms. We conclude that after the Sarbanes–Oxley Act of 2002, firms face constraints adjusting to target board structure, but these constraints can be mitigated by a shock to the contracting environment via acquisition.     

Machine Learning and Expert Judgement: Analyzing Emerging Topics in Accounting and Finance Research in the Asia–Pacific

In this paper, we focus on the question to what extent machine learning (ML) tools can be used to support systematic literature reviews. We apply a ML approach for topic detection to analyze emerging topics in the literature—our context is accounting and finance research in the Asia–Pacific region. To evaluate the robustness of the approach, we compare findings from the automated ML approach with the results from a manual analysis of the literature. The automated approach uses a keyword algorithm detection mechanism whereby the manual analysis uses common techniques for qualitative data analysis, that is, triangulation between researchers (expert judgement). From our paper, we conclude that both methods have strengths and weaknesses. The automated analysis works well for large corpora of text and provides a very standardized and non-biased way of analyzing the literature. However, the human researcher is potentially better equipped to evaluate current issues and future trends in the literature. Overall, the best results might be achieved when a variety of tools are used together.     

The Impact of Employment on Parental Coresidence

We examine the extent to which parents use housing and shared living arrangements as a form of risk‐sharing for their adult children, using detailed data on children and parents in the Health and Retirement Study for 1998–2012. On average, a young man moving from full‐time to nonemployment raises the likelihood of coresiding with a parent by 1.5 percentage points; moving from full‐time employment to being part‐time employed raises the likelihood of coresiding with a parent by 2 percentage points. The implied elasticity of parental coresidence with respect to the son's income is ‐1.1; for daughters, the elasticity is ‐0.5.     

CEO internal experience and voluntary disclosure quality: Evidence from management forecasts

Internally‐promoted CEOs should have a deep understanding of their firm's products, supply chain, operations, business climate, corporate culture, and how to navigate among employees to get the information they need. Thus, we argue that internally‐promoted CEOs are likely to produce higher quality disclosure than outsider CEOs. Using a sample of US firms from the S&P1500 index from 2001 to 2011, we hand‐collect whether a CEO is hired from inside the firm and, if so, the number of years they worked at the firm before becoming CEO. We then examine whether managers with more internal experience issue higher quality disclosures and offer three main findings. First, CEOs with more internal experience are more likely to issue voluntary earnings forecasts than those managers with less internal experience as well as those managers hired from outside the firm. Second, CEOs with more internal experience issue more accurate earnings forecasts than those managers with less internal experience as well as those managers hired from outside the firm. Finally, investors react more strongly to forecasts issued by insider CEOs than to those issued by outsider CEOs. In additional analysis, we find no evidence that these results extend to mandatory reporting quality (i.e., accruals quality, restatements, or internal control weaknesses), perhaps because mandatory disclosure is subjected to heavy oversight by the board of directors, auditors, and regulators. Overall, our findings suggest that when managers have work experience with the firm prior to becoming the CEO, the firm's voluntary disclosure is of higher quality.     

Uncertainty,Control, and Karl Polanyi’s Protective Response

Post-Keynesian institutionalist economists like Wallace Peterson and John Kenneth Galbraith recognized that the impact of uncertainty on economic wellbeing depends in part on the degree of control people have over the sources and consequences of it. Given the inability of government and other large institutions to reduce uncertainty or to provide citizens with the ability to manage it, mediating structures are considered as an alternative means of promoting economic security. The article concludes by describing and evaluating several of these alternatives.     

Interventions in Markets with Adverse Selection: Implications for Discount Window Stigma

I study the implications for central bank discount window stigma of a workhorse model of adverse selection in financial markets. In the model, firms (banks) need to borrow to finance a productive project. There is limited liability and firms have private information about their ability to repay their debts, which gives rise to the possibility of adverse selection. The central bank can ameliorate the impact of adverse selection by lending to firms. Discount window borrowing is observable and it may be taken as a signal of firms' credit worthiness. Under some conditions, firms borrowing from the discount window may pay higher interest rates to borrow in the market, a phenomenon often associated with the presence of stigma. I discuss these and other outcomes in detail and what they suggest about the relevance of stigma as an empirical phenomenon.     

Pricing Defaultable Bonds Using a Lévy Jump‐Diffusion Model

This paper uses a reduced‐form approach to derive a closed‐form pricing formula for defaultable bonds. The authors specify the default hazard rate as an affine function of multiple variables which follow the Lévy jump‐diffusion processes. Because such specification allows greater flexibility in the generation of a valid probability of default, their pricing model should be more accurate than the valuation models in traditional studies, which ignore the jump effects. This paper also proposes a new method for estimating the parameters in a Lévy Jump‐diffusion process. The real data from the Taiwanese bond market are used to illustrate how their model can be applied in practical situations. The authors compare the pricing results for the influential variables with no jump effects, with jump magnitudes following the normal distribution, and with jump magnitudes following the gamma distribution. The results reveal that the predictive ability is the best for the model with the jump components. The valuation model shown in this paper should help portfolio managers more accurately price defaultable bonds and more effectively hedge their portfolio holdings.     

Labour market characteristics and surviving import shocks

This paper investigates whether different labour market characteristics amplify or dampen the local labour market impacts from Chinese import competition exposure. I exploit state‐level variation in initial, pre‐shock labour market characteristics and regional variation across local labour markets in exposure to Chinese imports for identification. I find that local labour markets in states with higher union density experience more severe adverse consequences as a result of increased import exposure. Conversely, higher initial minimum wages help mute the negative impacts of the China shock. I also provide some evidence that exceptions to employment‐at‐will legislation can affect employment responses to increased Chinese imports. Finally, examining all policies together in an index, I show that higher levels of policies intended to benefit and protect workers can actually magnify the extent of the damage inflicted by import competition. My results suggest that initial labour market characteristics and policies can play an important role in understanding why local labour markets react differently to trade shocks.