FARM FINANCIAL MANAGEMENT: EMERGING PROBLEMS*

It is unlikely that the changes giving rise to the need for more attention to the agricultural finance areas will slow down in the foreseeable future. Financial parameters will be the major determinants of the entrepreneurial independence of family size and large food and natural fiber producers. The financial problems already confronting farming are numerous and complex, and the task ahead for the agricultural economists is great since time cannot be neutral in its effect if progress is to be achieved.     

The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs*

This study explores the effects of financial and tax reporting incentives on options granted to chief executive officers in Canada. Extant studies with a similar objective (Yermack 1995; Matsunaga 1995) explore predominantly nonqualified U.S. option grants that are deductible to the extent that the options are in the money at the time of exercise. In contrast, Canadian firms do not get a tax deduction for their stock option grants at any time. In both countries, no expense is recorded for financial reporting purposes. As a result, the financial reporting and tax reporting trade‐off is more pronounced in the Canadian setting of this study compared with the U.S. setting. We measure option granting behavior as the ratio of the Black‐Scholes value of stock option grants to the sum of cash compensation and the value of stock option grants. Using a sample of 806 firm‐year observations during the period 1993‐95, we find that observed option grants are significantly correlated with proxies for short‐run financial reporting incentives. We also find evidence that option granting behavior is correlated with proxies for tax incentives.     

Evidence on the Extent and Potential Sources of Long Memory in U.S. Treasury Security Returns and Yields

Unlike equity returns, many fixed-income return measures appear to display long memory. We show that the extent of long memory differs strongly for gross and excess holding period returns on U.S. Treasury securities. Granger and others have argued that long memory may only reflect infrequent structural breaks. We explore the impact of structural instability on tests for long memory and find only weak indications that it lies behind the long memory in our return series. The evidence of long memory remains strong for yield and term premia series even after accounting for a series of potential underlying structural changes.     

Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period

In this paper, we explore the relationship between real exchange rates and real interest rate differentials in the United States, Germany, Japan, and the United Kingdom. Contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant, we find little evidence of a stable relationship between real interest rates and real exchange rates. We consider both in-sample and out-of-sample tests. One hypothesis that is consistent with our findings is that real disturbances (such as productivity shocks) may be a major source of exchange rate volatility.     

Convergence or Divergence in Final-Offer Arbitration in Professional Baseball

Many labor relations practitioners and theorists believe that final-offer arbitration by a neutral third party encourages union and management officials to resolve their bargaining differences. However, decision scientists have found that there is no median convergence between the parties. Using professional baseball in our model, we test the assumption that major league owners tend to maximize expected monetary value (EMV), finding that claims of divergence are invalidated in dispute management contexts where there is a broad range of other motivations for settling. Decision models offer even further support for the use of final-offer arbitration in such settings.     

Taxes and the Pricing of Stock Index Futures

Stock index futures prices are generally below the level predicted by simple arbitrage models. This paper suggests that the discrepancy between the actual and predicted prices is caused by taxes. Capital gains and losses are not taxed until they are realized. As Constantinides demonstrates in a recent paper, this gives stockholders a valuable timing option. If the stock price drops, the investor can pass part of the loss on to the government by selling the stock. On the other hand, if the stock price rises, the investor can postpone the tax by not realizing the gain. Since this option is not available to stock index futures traders, the futures prices will be lower than standard no-tax models predict.     

EFFECT OF SURVEY CONDITIONS ON SELF-REPORTED SUBSTANCE USE

This paper examines the impact of survey conditions on the self-reported use of marijuana, cocaine, and alcohol in the 1984 and 1988 waves of the National Longitudinal Survey of Youth (NLSY). The analysis obtains probit estimates of lifetime and current participation rates and ordered probit estimates for the current frequency of use. The results clearly indicate that the manner in which the NLSY survey is administered significantly affects the self-reported substance use data. The presence of others at administration, self-administration, and data collection by telephone interview are particularly important influences .