The Bank Capital Decision: A Time Series—Cross Section Analysis

This paper seeks to explain the dramatic decline in capital to asset ratios in U.S. commercial banks during the last two decades. It is hypothesized that the rise in nominal interest rates during this period might have contributed substantially to the fall in capital ratios. Time series-cross section estimation supports the hypothesis regarding the interest rate.     

When Does Information Asymmetry Affect the Cost of Capital?

This paper examines when information asymmetry among investors affects the cost of capital in excess of standard risk factors. When equity markets are perfectly competitive, information asymmetry has no separate effect on the cost of capital. When markets are imperfect, information asymmetry can have a separate effect on firms’ cost of capital. Consistent with our prediction, we find that information asymmetry has a positive relation with firms’ cost of capital in excess of standard risk factors when markets are imperfect and no relation when markets approximate perfect competition. Overall, our results show that the degree of market competition is an important conditioning variable to consider when examining the relation between information asymmetry and cost of capital.     

Bank Earnings Management and Tail Risk during the Financial Crisis

We show that a pattern of earnings management in bank financial statements has little bearing on downside risk during quiet periods, but seems to have a big impact during a financial crisis. Banks demonstrating more aggressive earnings management prior to 2007 exhibit substantially higher stock market risk once the financial crisis begins as measured by the incidence of large weekly stock price “crashes” as well as by the pattern of full‐year returns. Stock price crashes also predict future deterioration in operating performance. Bank regulators may therefore interpret them as early warning signs of impending problems.     

Diverging Patterns: Labor in the Pacific Northwest Wood Products Industry

In 1986 workers in the Pacific Northwest United States accepted wage concessions while their Canadian counterparts prevailed after a lengthy strike. This study examines the forces behind the divergence in bargaining trends between American and Canadian wood products workers. It finds that while structural and cyclical economic changes in the industry were similar in both countries, there were crucial institutional and environmental differences. These enhanced the bargaining power of the Canadian membership of the International Woodworkers of America compared to that of IWA Region 3 in Oregon and Washington.