IAS Versus U.S. GAAP: Information Asymmetry–Based Evidence from Germany's New Market

Motivated by the debate about globally uniform accounting standards, this study investigates whether firms using U.S. generally accepted accounting principles (GAAP) vis‐à‐vis international accounting standards (IAS) exhibit differences in several proxies for information asymmetry. It exploits a unique setting in which the two sets of standards are put on a level playing field. Firms trading in Germany's New Market must choose between IAS and U.S. GAAP for financial reporting, but face the same regulatory environment otherwise. Thus, institutional factors such as listing requirements, market microstructure, and standards enforcement are held constant. In this setting, differences in the bid‐ask spread and share turnover between IAS and U.S. GAAP firms are statistically insignificant and economically small. Subsequent analyses of analysts' forecast dispersion, initial public offering underpricing, and firms' standard choices corroborate these findings. Thus, at least for New Market firms, the choice between IAS and U.S. GAAP appears to be of little consequence for information asymmetry and market liquidity. These findings do not support widespread claims that U.S. GAAP produce financial statements of higher informational quality than IAS.     

Are twin currency and debt crises special?

In the literature on currency and banking crises it has become the standard procedure to distinguish pure currency crises, pure banking crises and combined (“twin”) currency and banking crises. We show theoretically and empirically that a similar differentiation should be chosen with regard to currency and debt crises. Twin currency and debt crises differ from both pure currency and pure debt crises in their determinants, course of events, and economic consequences. We find that each type of crises has a unique set of macroeconomic causes. We also identify internal contagion and selection bias effects, which may lead to biased empirical estimates if twin crises are not treated as a specific type of crises. Such a separation allows in significantly improving the efficiency of early warning systems especially for debt and twin crises.     

Shareholder wealth gains through better corporate governance—The case of European LBO-transactions

We examine shareholder wealth effects in a heterogeneous sample of 115 European leveraged going private transactions from 1997 to 2005. Average abnormal returns as reaction to the LBO announcement amount to 24.20%. In cross-sectional regressions, we find that these value gains can largely be attributed to differences in corporate governance: on a macro level, abnormal returns for pre-LBO shareholders are larger in countries with a poor protection of minority shareholders. On a firm level, companies with a high pre-LBO free float and comparatively weak monitoring by shareholders tend to show high abnormal returns. Furthermore, companies that are undervalued with respect to an industry peer-group exhibit higher announcement returns, indicating that agency conflicts and/or market inefficiencies can serve as an explanation.

Self-enforcing employment contracts and business cycle fluctuations

This paper incorporates risk-sharing employment contracts into an economy in which matching frictions characterize the labour market and in which agents cannot commit. In equilibrium, the terms of ongoing contracts are affected by those being negotiated in the job market because contracts must be self-enforcing. In this context, risk-sharing implies that hours worked and wages are negatively related, while enforcement considerations imply the converse. Overall, the sign of this relationship is ambiguous. Therefore, the existence of such contracts may explain why movements in hours worked appear weakly related to those in real wages in U.S. aggregate data.     

Taxation and Venture Capital Backed Entrepreneurship

In recent years, venture capital has increasingly become a factor in the financing of new firms. We examine how the value of mature firms determines the incentives of entrepreneurs to start up new firms and of venture capitalists to finance and advise them. We examine how capital gains taxes as well as subsidies to start-up costs of new firms affect venture capital backed entrepreneurship. We also argue that dividend and capital gains taxes on mature firms have important consequences for start-up firms as well.     

Entrepreneurial Spawning: Experience,Education, and Exit

We investigate the career dynamics of high‐tech entrepreneurs by analyzing the exit choice of entrepreneurs: to act as a business angel, to found another firm, or to become dependently employed. Our detailed data from CrunchBase indicate that founders are more likely to stick with entrepreneurship as a serial entrepreneur or as an angel investor in cases where the founder had prior experience either in founding other startups or working for a startup, or had a “jack‐of‐all‐trades” education.     

The Role of Interest Rates in Influencing Long-Run Homeownership Rates

As a stated policy objective, the U.S. Department of Housing and Urban Development (HUD) seeks to boost the national homeownership rate to 70 percent by 2006. To accomplish this goal, they estimate that 3.8 million additional families be added to the ranks of U.S. homeowners. Furthermore, HUD estimates that the homeownership gap between minority and nonminority families must be reduced by a full 15 percent. Many policy instruments—both targeted and otherwise—have been suggested to increase homeownership. These range from low downpayment loans, greater access to credit in underserved areas, and interest rates subsidies. However, little is know about the efficacy of these measures to raise long-term homeownership rates. In this analysis, we focus on the role of interest rates on homeownership rates and the housing stock. In particular, we provide a critical review of the literature on the relationship between housing and interest rates in contrast to other determinants of homeownership and changes in housing supply. We then present our own estimates of the influence of interest rates on homeownership and housing starts. We find that interest rates play little direct role in changing homeownership rates. While changes in interest rates may affect the timing of changes in tenure status from renter to owner, the long-run ownership rate appears independent of interest rates. We find housing starts are, however, sensitive to changes in the interest rate. This implies that housing supply, or at least the timing of changes in housing supply, is sensitive to interest rates. It is though this mechanism that the stock of owner-occupied housing expands, though household formation and immigration may leave the ownership rate unchanged. We conclude by discussing whether other instruments, such as low down payment loans and improved technology for assessment of credit risk, may potentially be better suited to increasing long-term homeownership rates.