Factors Affecting Borrower Choice Between Fixed and Adjustable Rate Mortgages

For this study, data were collected from 352 mortgage borrowers to determine whether mortgage decisions are economically rational with regard to the type of mortgage believed to have the higher expected cost, and how various factors affect mortgage choice. For many borrowers, the type of mortgage with actual higher expected cost (based on interest rates and residency expectations) is not the type of mortgage thought to have the higher expected cost. The financial planning aspect of a mortgage choice and the risk factor have a significant influence on this choice, whereas lender constraints and the financial cost aspect do not. These findings suggest that consumer education programs focusing on mortgage choice are needed.     

Animal Spirits,Financial Markets,and Aggregate Instability

This paper examines whether people's animal spirits were drivers of U.S. business cycle fluctuations. In the context of an estimated macroeconomy with endogenous financial market frictions, allowing for “psychological” or nonfundamental expectational shocks improves the fit of the model and, at the posterior mode, these shocks account for well over one-third of output fluctuations. Exogenous financial frictions are considerably less important. U.S. data favor the indeterminacy model over versions of the economy in which animal spirits cannot play a role.     

Audit Partners’ Role in Material Misstatement Resolution: Survey and Interview Evidence

Auditors are expected to identify and resolve material misstatements (MMs) in management's financial statements. However, beyond the audit opinion, the audit process is opaque. To address this, we independently survey 462 audit partners and interview 24 audit partners, CFOs, and audit committee members on how partners assess and address MM risk, resolve MMs, and the consequences of MMs. Partners identify MMs in approximately 9% (15%) of public (private) engagements and use qualitative factors to waive apparent MMs. Loan covenant and going-concern issues increase MM risk more than earnings benchmark issues. Partners point to a variety of both auditor and client factors as threats to audit effectiveness. Partners often rely on rapport with management and involve the national office and audit committee in resolving MMs. Partner incentives around restatements are context specific. Our results provide new insights into the auditor's role in financial reporting that are relevant to academics, practitioners, and regulators.     

The Economic Impact of the Boston Living Wage Ordinance*

This paper presents one of the first quantitative assessments of the effect living wage laws have had on firms covered by their mandate. Applying difference‐in‐difference estimation methods to survey data from Boston, Massachusetts, I find little evidence of reduced employment or hours worked, following living wage implementation. Instead, there is strong evidence that firms actually shifted from part‐time towards full‐time staffing as a result of Boston's living wage law. Estimates also reveal a substantial degree of wage compression within firms who raised wages. Finding no evidence of reduced employment or hours, this paper uses qualitative survey data to examine other ways in which firms may have adjusted to higher wages. I find some evidence that covered firms have taken lower profits as a way to adjust to the Boston law.     

Credit Availability and the Collapse of the Banking Sector in the 1930s

This paper examines the mechanism through which banking sector distress affects the availability of credit using the experience of the United States during the Great Depression. We utilize previously neglected data from a 1934 survey conducted by the Federal Reserve System of both banks and Chambers of Commerce regarding the availability of credit, and examine which aspects of the banking system collapse affected credit availability as indicated by the survey. We find that bank failures had the most dominant impact, but there is also some evidence for the importance of funding constraints from deposit outflows and of protracted bank liquidation.     

Ratings Competition in the CMBS Market

We consider the relationship between competition among credit rating agencies and the ratings of commercial mortgage‐backed securities (CMBS) using data from 2002 to 2007. We characterize competition using Fitch's aggregate share of CMBS ratings and a measure of Fitch's deal‐specific market share constructed as the probability of Fitch being hired for a specific transaction. Controlling for deal characteristics, we find that subordination levels were lower when Fitch's aggregate and deal‐specific market shares were higher, which suggests that ratings competition yielded less stringent ratings when Fitch was a more significant competitor, although this effect dissipates when Fitch's market shares were high.     

THE ECONOMIC VALUE OF PREVENTING RESPIRATORY AND CARDIOVASCULAR HOSPITALIZATIONS

This article provides estimates of the economic benefits of reducing respiratory and cardiovascular hospitalizations based on cost of illness and willingness to pay. The willingness-to-pay estimates indicate that individuals value prevention of a five-day hospitalization event at an average of approximately $2,400. Average total costs of illness per hospitalization are $22,000–39,000. A comprehensive cost-of-illness estimate that includes value of time losses for the hospitalization and at-home recovery periods provides a close approximation of total costs borne by third parties plus individual willingness to pay. Both exceed previous cost-of-illness estimates by about 10–25%. (JEL D61, I18, Q25 )