Determinants of post-congressional lobbying employment

This paper studies the determinants of lobbying-employment decisions of former members of the U.S. House of Representatives for the 105th–108th Congresses. The main empirical findings indicate that there are two groups more likely to become lobbyists: members not re-elected who had more conservative voting records and held important committee assignments and longer-serving members who voluntarily retired and voted less conservatively in their last term compared to their previous terms in office. A decomposition analysis confirms that the revolving doors for the two groups of legislators differ because of differences in employer response rather than in legislator characteristics.     

Policy–making in the EU: the bananarama story, the WTO and policy transparency

The EU banana policy is manifestly bad. But despite a healthy policy transparency process and comprehensive public criticisms of its extreme inefficiencies, its costs have been growing progressively worse and more disruptive of international commerce. This raises serious doubts about the WTO process, and the policy transparency process itself. At the very least, the EU bananarama story told here means we should not be complacent about either.     

Exchange rate volatility and its impact on the transaction costs of covered interest rate parity

This paper provides empirical evidence on the linkage between foreign exchange market volatility and daily 90-day covered interest rate parity (CIP) conditions of the three major exchange rates against the US dollar (US$). Markov regime shifting models were utilized to generate time series of volatility regime probabilities and these were used to explain the first and second moments of the daily deviations from and the transaction cost bands around the covered parity conditions. We find a significant positive relationship between the deviations and the regime probabilities, indicating an increasing probability of higher volatility state being associated with rising deviations (both first and second moments) from the parity condition. Similar positive relationship is found for the transaction bands. Rising (falling) probabilities of high (low) volatility regimes increased the first and second moments of the bands. Furthermore, we find a higher volatility state combined with a US$ depreciation is associated with significantly higher volatility in the daily deviations than an appreciation. Also, US$ depreciation is associated with widening transaction bands. This suggests that the level of market uncertainty was higher when the US$ was depreciating.     

Lending Through the Cycle: The Federal Housing Administration’s Evolving Risk in the Primary Market

Utilizing a sample of loan originations, the distribution of the market served by the Federal Housing Administration (FHA) and conventional lenders is modeled through this current cycle. Results indicate that FHA market shares in the early years of the observation period (2003 through 2006) are concentrated in zip codes with higher economic risk characteristics and obtained by high risk borrowers. FHA is forced to accept lower quality loans as competition from more nimble private lenders with lower access hurdles and more rapid processing expanded into markets traditionally served by FHA. Unexpectedly, the analysis also reveals that the distribution of FHA loans fails to exhibit a targeted racial bias toward neighborhoods with African American Concentration.     

Underwriter syndication and corporate governance

The main purpose of this paper is to examine underwriters’ response to issuers’ ineffective corporate governance. Given the growing importance of corporate governance for the success of equity offerings, we examine this response using a sample of seasoned equity offerings (SEOs). Previous studies suggest various rationales behind underwriter syndication, such as risk sharing, market-making, information production, certification, and monitoring. We offer an information-asymmetry-reduction hypothesis for the persistence of underwriter syndication. We argue that less effective corporate governance decreases information credibility, which, in turn, increases information asymmetry, leading underwriters to increase syndicate size to mitigate subsequent agency problems. Consistent with this prediction, we find that the size of the underwriter syndication is inversely related to proxies that measure the effectiveness of corporate governance. Results remain robust even after controlling for other confounding factors.     

An empirical analysis of bank interest rate swaps

Considering the characteristics of banks that do and do not report interest rate swaps, the long-term interest rate exposure of a bank and the likelihood and extent of swap market participation are found to be positively related. Key to the finding is the inclusion of variables related to the provision of swap market intermediary services, which significantly explain both the likelihood of swap market participation and the notional value of outstanding swaps. The results suggest that the likelihood and extent of swap market participation by low-capitalized banks is less than for other banks.     

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

The practice of providing quarterly earnings guidance has been criticized for encouraging investors to fixate on short-term earnings and encouraging managerial myopia. Using data from the post–Regulation Fair Disclosure period, we examine whether the cessation of quarterly earnings guidance reduces short-termism among investors. We show that, after guidance cessation, investors in firms that stop quarterly guidance are composed of a larger (smaller) proportion of long-term (short-term) institutions, put more (less) weight on long-term (short-term) earnings in firm valuation, become more (less) sensitive to analysts’ long-term (short-term) earning forecast revisions, and are less likely to dismiss chief executive officers for missing quarterly earnings targets by small amounts, relative to investors in firms that continue to issue quarterly earnings guidance. Our study provides new evidence of the benefit of stopping quarterly earnings guidance, that is, the reduction of short-termism among investors.     

A century of purchasing power parity confirmed: The role of nonlinearity

Taylor (2002) claims that Purchasing Power Parity (PPP) has held over the 20th century based on strong evidence of stationary for century-long real exchange rates for 20 countries. Lopez et al. (2005), however, found much weaker evidence of PPP with alternative lag selection methods. We reevaluate Taylor’s claim by implementing a recently developed nonlinear unit root test by Park and Shintani (2005). We find strong evidence of nonlinear mean-reversion in real exchange rates that confirms Taylor’s claim. We also find a possible misspecification problem in using the ESTAR model that may not be detected with Taylor-approximation based tests.