Specific Purpose Payments and the Commonwealth Grants Commission*

The Commonwealth Grants Commission has, over the past ten years, been concerned with assessing the per capita relativities to be applied to the distribution of general revenue grants to the States in Australia to achieve fiscal equalization. In arriving at these assessments, the Commission has developed a number of approaches to the treatment of specific purpose payments. It is argued that one of these approaches – the inclusion approach – has an overriding effect which may place fiscal equalization in conflict with other objectives of Commonwealth policy. The nature of this conflict and its management are then explored     

Can Managers Successfully Time the Maturity Structure of Their Debt Issues?

This paper provides a rational explanation for the apparent ability of managers to successfully time the maturity of their debt issues. We show that a structural break in excess bond returns during the early 1980s generates a spurious correlation between the fraction of long‐term debt in total debt issues and future excess bond returns. Contrary to Baker, Taliaferro, and Wurgler (2006) , we show that the presence of structural breaks can lead to nonsense regressions, whether or not there is any small sample bias. Tests using firm‐level data further confirm that managers are unable to time the debt market successfully.     

Nonsynchronous Security Trading and Market Index Autocorrelation

The theoretical portfolio autocorrelation due solely to nonsynchronous trading is estimated from a derived model. This estimated level is found to be substantially less than that observed empirically. The theoretical and empirical relationship between portfolio size and autocorrelation also is investigated. The results of this study suggest that other price-adjustment delay factors in addition to nonsynchronous trading cause the high autocorrelations present in daily returns on stock index portfolios.     

Don't Believe the Hype: Local Media Slant,Local Advertising,and Firm Value

When local media report news about local companies, they use fewer negative words compared to the same media reporting about nonlocal companies. We document that one reason for this positive slant is the firms' local media advertising expenditures. Abnormal positive local media slant strongly relates to firm equity values. The effect is stronger for small firms; firms held predominantly by individual investors; and firms with illiquid or highly volatile stock, low analyst following, or high dispersion of analyst forecasts. These findings show that news content varies systematically with the characteristics and conflicts of interest of the source.     

Alternative Schemes for Distributing Transfers to Natural Disaster Victims: Analysis and Implementation*

This paper outlines a scheme for distributing natural disaster relief to individuals derived from the principles of equity in taxation. This scheme is then given a specific algebraic formulation which, given a constraint on the total value of grants to be distributed, can be solved subject to grant-making bodies determining one of two policy parameters, viz, a subsistence income level below which disaster victims would bear no damage themselves, or the rate at which grants are reduced as peoples' incomes increase. The scheme as outlined can be adapted to policy makers' different specifications of one of these two parameters. Empirical implementation of the scheme is illustrated.     

Book Reviews

Pollution Prevention Pays
Industrial Innovation-Technology, Policy, Digusion
Technical Change and Employment
Unemployment
Industrial New Product Development-A Manual for the 1980's
The Heart of the Enterprise     

Can Managers Forecast Aggregate Market Returns?

Previous studies have found that the proportion of equity in total new debt and equity issues is negatively correlated with future equity market returns. Researchers have interpreted this finding as evidence that corporate managers are able to predict the systematic component of their stock returns and to issue equity when the market is overvalued. In this article we show that the predictive power of the share of equity in total new issues stems from pseudo‐market timing and not from any abnormal ability of managers to time the equity markets.