Changes in Cash: Persistence and Pricing Implications

This paper decomposes the cash component of earnings and analyzes persistence characteristics and pricing implications of various subcomponents, with particular attention to changes in cash. Changes in underlying fundamentals might dictate changes in cash to new optimal levels. Alternatively, suboptimal changes in cash might result from agency costs allowing managers’ actions to diverge from the best interests of shareholders. We predict and find that both suboptimal increases and decreases in cash bode poorly for future earnings. In fact, we find that suboptimal increases (decreases) in cash have less (greater) persistence than any of the earnings components we study, including accruals and net distributions to both shareholders and debt holders. Market efficiency tests indicate that the market severely punishes firms with suboptimal decreases in cash, but we find no evidence to support the hubris hypothesis that the market overreacts to the earnings implications of unwarranted increases in cash.     

DO ACTIONS SPEAK AS LOUD AS WORDS? COMMITMENTS TO “GOING GREEN” ON CAMPUS

Signatories to the American College and University Presidents' Climate Commitment (ACUPCC) pledge to pursue a path toward carbon neutrality through the choice of a set of Tangible Actions (TAs). The actions can be chosen either because they will lead to reductions or because they are the easiest to achieve. By exploiting the variation in the TAs chosen by colleges, we find evidence for both of these motivations. We find evidence that schools focusing their efforts on improving energy efficiency have achieved swift reductions. Conversely, schools pledging to use green power are generally already utilizing it and therefore do not achieve additional reductions. We conclude with suggestions for improvement in the ACUPCC reporting system that would improve potential for analysis. (JEL Q01, Q40, Q56)     

Regulations and Productivity Growth in Banking: Evidence from Transition Economies

This paper examines the relationship between the regulatory and supervision framework, and the productivity of banks in 22 countries over the period 1999–2009. We follow a semiparametric two‐step approach that combines Malmquist index estimates with bootstrap regressions. The results indicate that regulations and incentives that promote private monitoring (PMON) have a positive impact on productivity. Restrictions on banks’ activities relating to their involvement in securities, insurance, real estate, and ownership of nonfinancial firms also have a positive impact. Regulations relating to the first and second pillars of Basel II, namely, capital requirements (CAPR) and official supervisory power (SPR) do not have, in general, a statistically significant impact on productivity over the study period although they appear to gain in importance following the onset of the financial crisis in 2007. The latter finding indicates that stringent capital and supervisory standards have positive productivity effects when financial pressures peak. Our results are robust when controlling for various country‐specific features and alternative estimation approaches.     

Evolving Macroeconomic Dynamics in a Small Open Economy: An Estimated Markov Switching DSGE Model for the UK

This paper investigates the possibility of shifts in the UK economy using a Markov switching open economy dynamic stochastic general equilibrium (DSGE) model. We find overwhelming evidence to reject the hypothesis that the deep structural parameters of the underlying structural model had stayed constant throughout the sample period and there is significant changes to the volatility of the structural shocks. Counterfactual experiments based on the model with the best empirical fit indicate that the change in the policy rule as well as changes to the volatility of the structural shocks over the sample period are crucial features in explaining UK’s macroeconomic performance.     

WESTERN FARM LABOR ISSUES

This paper examines three farm labor issues: (1) how mechanization affects the demand for farm labor; (2) how immigration reform affects the supply of farm workers; and (3) how 10 years of collective bargaining affect the farm labor market. The evidence suggests that mechanization, immigration reform, and collective bargaining have had or will have fewer effects on the farm labor market than is often assumed. However, the farm labor market is vulnerable to future shocks if it remains isolated from nonfarm labor markets.