Credit Default Swaps and Managers’ Voluntary Disclosure

We investigate how the availability of traded credit default swaps (CDSs) affects the referenced firms’ voluntary disclosure choices. CDSs enable lenders to hedge their credit risk exposure, weakening their incentives to monitor borrowers. We predict that reduced lender monitoring in turn leads shareholders to intensify their monitoring and demand increased voluntary disclosure from managers. Consistent with this expectation, we find that managers are more likely to issue earnings forecasts and forecast more frequently when traded CDSs reference their firms. We further find a stronger impact of CDS availability on firm disclosure when (1) lenders have higher ability and propensity to hedge credit risk using CDSs, and (2) lender monitoring incentives and monitoring strength are weaker. Consistent with an increase in shareholder demand for public information disclosure induced by a reduction in lender monitoring, we find a stronger effect of CDSs on voluntary disclosure for firms with higher institutional ownership and stronger corporate governance. Overall, our findings suggest that firms with traded CDS contracts enhance their voluntary disclosure to offset the effect of reduced monitoring by CDS‐protected lenders.     

Bad Credit,No Problem? Credit and Labor Market Consequences of Bad Credit Reports

We study the financial and labor market impacts of bad credit reports. Using difference-in-differences variation from the staggered removal of bankruptcy flags, we show that bankruptcy flag removal leads to economically large increases in credit limits and borrowing. Using administrative tax records linked to personal bankruptcy records, we estimate economically small effects of flag removal on employment and earnings outcomes. We rationalize these contrasting results by showing that, conditional on basic observables, “hidden” bankruptcy flags are strongly correlated with adverse credit market outcomes but have no predictive power for measures of job performance.     

EFFECTS OF TAXES AND BENEFITS ON INCOME DISTRIBUTION IN KOREA

This paper examines the redistributive effects of Korea's fiscal policies, including consumption taxes and in‐kind benefits. Using the Household Income and Expenditure Survey of 2007, we find that taxes and transfers reduce income inequality in Korea by 13.8 percent. Contrary to the popular belief that direct taxes are the key tool for redistribution, in‐kind benefits, direct taxes, and social security contributions all decrease the Gini coefficient by 6.7, 4.7, and 2.9 percentage points, respectively. The redistributive effect of consumption taxes is small and negative (?0.5 percentage point). Policy simulations indicate that education spending financed by the personal income tax has a positive redistributive effect and that the lower 70 percent of households enjoy positive net benefits. Spending targeting the poor has a strong redistributive effect, which implies low popularity because the majority of households face net losses.     

Picture–Text Incongruency in Print Advertisements among Low‐ and High‐Literacy Consumers

While low‐literacy consumers rely heavily on pictorial information when making market‐based decisions, they also do attempt to read relevant information. When the advertisement picture and text are aligned, so too should be the conclusions low‐literacy consumers draw. We ask what happens when the pictures and accompanying text are incongruent. Results of an experiment indicate that low‐literacy consumers misinterpreted an advertisement with text–picture incongruity more regularly than did high‐literacy consumers. Furthermore, low‐literacy consumers demonstrated errors in comprehension that reflect picture‐based processing. However, despite comprehension differences between low‐ and high‐literacy consumers, attitudes toward the advertisement did not differ.     

Aggregate Implications of Heterogeneous Households in a Sticky‐Price Model

This paper analyzes the role of heterogeneous households in propagating shocks over the business cycle by generalizing a basic sticky‐price model to allow for imperfect risk sharing between households that differ in labor incomes. I show that imperfectly insured household consumption distorts household incentive to supply labor hours through an idiosyncratic income effect, which in turn generates strategic complementarities in price setting and thus amplifies business cycle fluctuations. This mechanism diminishes the role of nominal rigidities and makes sticky‐price models more consistent with microeconomic evidence on the frequency of price changes.     

EFFICIENCY GAINS OF SYSTEM GMM AND MDE OVER INDIVIDUAL EQUATION ESTIMATION*

In the econometric literature it is known that, under certain conditions, estimating a system of equations together is more efficient than estimating each equation separately. This finding has been proved, however, only under the assumption of a known parametric form of heteroskedasticity (including homoskedasticity) or non‐random regressors/instruments. This note shows that an analogous finding holds for GMM under heteroskedasticity of unknown form and random regressors/instruments. Specifically, I provide a necessary condition for the efficiency gain of the system GMM over the single‐equation GMM. An analogous necessary condition for the efficiency gain is also shown to hold for minimum‐distance (or χ2) estimation (MDE).     

Decision Making by Low‐Literacy Consumers in the Presence of Point‐of‐Purchase Information

Low‐literacy consumers face disadvantages when making product choices. This article presents the results of two studies designed to explore differences in decision‐making behavior across consumer literacy levels, focusing on consumers’ ability to evaluate information in print ads and product packaging. The authors demonstrate that the presence of a visual decision aid at the point of purchase can improve choice for low‐literacy consumers.     

Fast-food consumption in South Korea

The consumption of fast-food products in Korea has undergone a rapid increase over the past ten to fifteen years. The aim of this study was to determine the frequency with which South Koreans consume seven common Western-style fast-food products and five common Korean-style fast-food products, and to find the socio-economic group most responsible for the increase in fast-food consumption. Data were collected on the dietary patterns and socio-economic backgrounds of 1,745 subjects between the ages of 12 and 64 years in urban and rural areas of Korea. This study showed that the fast-food products investigated were consumed mainly by Koreans under the age of 30, single, female, residents of Seoul, and either presently students or young adults with only grade school education. However, the results indicated that the consumption of most fast-food products was distributed amongst all income levels.     

Volatility in Wheat Spot and Futures Markets, 1950–1993: Government Farm Programs,Seasonality, and Causality

We explore how wheat spot and futures market volatility has been impacted by government farm programs during the 1950–1993 period. We find that changing volatility in both markets is highly associated with changing farm programs. The mandatory allotment programs of the 1950s and early 1960s (1/3/50–4/10/64) were associated with low volatility, while the voluntary programs initiated in the mid 1960s seem to have induced high volatility (4/11/64–12/22/85). Both market-driven loan rates and conservation reserve programs appear to have helped volatility revert to lower levels since the mid 1980s (12/23/85–12/30/93). We also examine seasonality and causality in conjunction with the farm programs.     

CONTRACT ENFORCEMENT AND INTERNATIONAL TRADE

This paper derives estimating equations from a model where individuals consume two classes of goods, and the degree of contract enforcement affects the transaction cost of trade in the two classes of goods differentially. Empirically, using Rauch's classification, internationally traded goods are classified into differentiated goods and those possessing a reference price, with the presumption that contract enforcement issues are more important for the former. It is verified that the measures of contract enforcement affect the volume of trade in both types of goods, but the impact is larger for differentiated goods.