Efficient Estimation: The Rao-Zyskind Condition, Kruskal's Theorem and Ordinary Least Squares*

The paper emphasizes the practicability and accessibility of the necessary and sufficient condition for ordinary least squares to yield best linear unbiased estimators in several problems that are available in econometrics Two convenient equivalent alternative forms of the condition are presented It is shown that the condition is useful for analyzing different problems and is especially relevant for pedagogical purposes Several practical economic examples are presented     

Emergence of Captive Finance Companies and Risk Segmentation in Loan Markets: Theory and Evidence

A seller with some degree of market power in its product market can earn rents. In this context, there is a gain to granting credit to purchase of the product and thus to the establishment of a captive finance company. This paper examines the optimal behavior of such a durable good seller and its captive finance company. The model predicts a critical difference between the captive finance company's credit standard and that of independent lenders ("banks"), namely, that the captive finance company will adopt a more lenient credit standard. Thus, we should expect the likelihood of repayment of a captive loan to be lower than that of a bank loan, other things equal. This prediction is tested using a unique data set drawn from a major credit bureau in the United States, and the evidence supports the theoretical prediction.     

An Investigation of the Effects of Specialization in Audit Workpaper Review*

Abstract. This study examines the effect of specialization at the different stages of an audit workpaper review. Auditing literature advises focusing each review level on specific kinds of errors (i.e., seniors on mechanical errors and managers on conceptual errors), rather than having seniors and managers perform successive all-encompassing reviews. However, surveys of review practice suggest that all-encompassing reviews are common. To determine whether specialization at different levels of review improves reviewers' overall effectiveness, this study has 35 managers and 39 seniors actually perform a review of a realistic set of workpapers. Half the subjects performed specialized reviews, whereas the other half performed all-encompassing reviews. Overall accuracy rates in our study are consistent with prior research. In addition, the combined reviews of seniors and managers are more effective than those of either seniors or managers separately, demonstrating the benefits of hierarchical review. However, specialized review leads reviewers to be significantly less accurate than reviewers performing all-encompassing reviews. The results suggest specialization will not automatically improve review effectiveness, and that accounting firms may need to re-evaluate their review guidance and professional training on workpaper reviews.     

The Impacts of the California Beverage Container Recycling and Litter Reduction Act on Consumers

In late 1987 the California Beverage Container Recycling and Litter Reduction Act went into effect. Like mandatory beverage deposit legislation in other states, this Act is designed to promote returns through the payment of a redemption value. However, unlike traditional legislation, the Act attempts to promote recycling with lower redemption values and more state intervention. This paper presents a methodology for analyzing the impacts of beverage container recycling legislation on consumers. Applying this methodology to California, it is found that the Act will significantly reduce beverage container solid waste and litter, but the net benefits of the Act depend critically on consumers' valuations of intangible benefits.     

Sell‐Side Analyst Research and Stock Comovement

We document that a stock's price around a recommendation or forecast covaries with prices of other stocks the issuing analyst covers. The effect of shared analyst coverage on stock price comovement extends beyond analyst activity days. A stock's daily returns covary with the returns of other stocks with which it shares analyst coverage. These links between stock price comovement and shared analyst coverage are consistent with the coverage‐specific information we find in earnings forecasts; analysts who cover both stocks in a pair expect future earnings of the stocks to be more highly correlated than do analysts who cover only one stock from the pair. Collectively, our evidence indicates that analyst research produces coverage‐specific spillovers that raise price comovement among stocks that share analyst coverage. The strength of these spillovers is comparable to spillovers from broad industry and market information in analyst research.