How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans

Legal and institutional differences shape the ownership and terms of bank loans across the world. We show that under strong creditor protection, loans have more concentrated ownership, longer maturities, and lower interest rates. Moreover, the impact of creditor rights on loans depends on borrower characteristics such as the size and tangibility of assets. Foreign banks appear especially sensitive to the legal and institutional environment, with their ownership declining relative to domestic banks as creditor protection falls. Our multidimensional empirical model paints a more complete picture of how financial contracts respond to the legal and institutional environment than existing studies.     

Scottish,Irish, and imperial connections: Parliament,the three kingdoms,and the mechanization of cotton spinning in eighteenth‐century Britain1

This paper offers a new perspective on the emergence of machinery in the cotton spinning trade during the third quarter of the eighteenth century. It does so by examining the interplay between economic, political, and national interests within the early Hanoverian state. Changes in trading relationships between textile producers across the three kingdoms of England/Wales, Ireland, and Scotland created escalating supply‐side problems, which, by the 1760s, would precipitate a quest for solutions based on new technologies.     

Wall Street Occupations

Many finance jobs entail the risk of large losses, and hard‐to‐monitor effort. We analyze the equilibrium consequences of these features in a model with optimal dynamic contracting. We show that finance jobs feature high compensation, up‐or‐out promotion, and long work hours, and are more attractive than other jobs. Moral hazard problems are exacerbated in booms, even though pay increases. Employees whose talent would be more valuable elsewhere can be lured into finance jobs, while the most talented employees might be unable to land these jobs because they are “too hard to manage.”     

Coverage of Criticism of Activity‐Based Costing in Canadian Textbooks*

Textbook authors and publishers face a difficult decision regarding coverage of activity‐based costing (ABC). ABC could be presented in a strictly positive light, because it enjoyed immense popularity when it was introduced in the 1980s and it is still referred to in favourable terms in practitioner journals. On the other hand, ABC can be criticized on practical and theoretical grounds. Surveys report that a minority of firms adopt ABC, and there are indications of dissatisfaction among some users. In addition, ABC requires direct proportionality and the exclusion of common costs, which are difficult conditions to meet. In this paper, we first describe the practical and theoretical material supporting criticism of ABC that is available to be cited by textbook authors. We then review the coverage of this material in the five textbooks that are most widely used in Canadian universities and colleges.     

Customary vs Private Property Rights? Dynamics and Trajectories of Vernacular Land Markets in Sub‐Saharan Africa

Contemporary discourse on land in Africa is polarized between advocates of tenure reform through state registration of individual titles to land and others who claim that customary or 'communal' tenure is the only check against landlessness among the poor in the African countryside, and that 'pro-poor' land policy should therefore strengthen customary rights to land. This paper draws on a growing body of evidence on the emergence of vernacular rural land sales and rental markets to question assumptions that underlie the non-market 'ideal type' communal tenure model that has historically dominated policy thinking in Africa, and continues to be shared by both sides of the current land tenure reform debate. The paper argues that recognition of the specific characteristics of 'vernacular land markets'– commoditized transfers of land within the framework of customary tenure – is essential if state land policies are to succeed in promoting the interests of the poor.     

Technology, Environment and the Productivity Problem in African Agriculture: Comment on the World Development Report 2008

This paper is concerned with the need for a 'productivity revolution in smallholder farming' that the World Development Report 2008 (WDR08) identifies is required in sub-Saharan Africa. It reviews the technological options for such a productivity revolution in Africa, and how these are conditioned by the 'agriculture-based' model the WDR08 uses to characterize African economies. It argues that the model effects, firstly, a disconnection of agriculture from 'urban' Africa that constitutes its principal market and the source of investment and inputs with which to raise productivity, and, secondly, an adherence to unrealistic and sometimes contradictory assumptions about the way markets link agriculture to other parts of the economy.     

Bustup Takeovers of Value-Destroying Diversified Firms

We examine whether the value loss from diversification affects takeover and breakup probabilities. We estimate diversification's value effect by imputing stand-alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover, those acquired firms whose losses are greatest are most likely to be bought by LBO associations, which frequently break up their targets. For a subsample of large diversified targets: (1) higher value losses increase the extent of post-takeover bustup; and (2) post-takeover bustup generally results in divested divisions being operated as part of a focused, stand-alone firm.     

Regulatory Incentives and the Thrift Crisis: Dividends,Mutual-to-Stock Conversions,and Financial Distress

During the 1980s, insolvency of individual thrifts and the thrift deposit insurer created severe incentive problems. Lacking cash to close insolvent thrifts, regulators induced nearly $10 billion of private capital to flow into the industry through mutual-to-stock conversions. We test a theory of how regulators encouraged capital-impaired mutual thrifts to convert by permitting them to pay dividends rather than rebuild capital. We estimate the costs of this policy and interpret the 1991 Federal Deposit Insurance Corporation Improvement Act as requiring regulators to impose restraints on depository institutions parallel to debt covenants that prevent capital distributions by nonfinancial firms experiencing distress.