This paper provides a set of empirical tests of the cross-sectional variation of stock volatility and investablility, where investability is defined as the degree to which a stock is accessible to foreigners. Unlike previous studies, which focus on market volatility and market return, we study the relationship between individual stock return volatility and its investablility. Our findings have ...

The probability approach to uncertainty and modeling is applied to default probability estimation. This issue has attracted attention as banks contemplate the requirements of Basel II’s IRB rules. Nicholas M. Kiefer proposes the fomal introduction of expert information into quantitative analysis. An application treating the incorporation of expert information on the default probability is consi...

We assess the impact of the Sarbanes-Oxley Act of 2002 on corporate investment in an investment Euler equation framework, where a dummy for the passage of the Act is allowed to affect the rate at which managers discount future investment payoffs. Using generalized method of moments estimators, we find that the rate U.S. firm managers apply to discount investment projects rises significantly aft...

In a multi-industry growth model, firms require external funds to conduct productivityenhancing R&D, and face financing constraints. The cost of research differs across industries, so that financing constraints hinder productivity growth in some industries more than in others. Equilibrium industry dynamics map into a differences-indifferences regression specification where industry growth depen...

In recent years, securitization and other ®nancial innovations have provided unprecedented opportunities for banks to reduce substantially their regulatory capital requirements with little or no corresponding reduction in their overall economic risks ± a process termed ``regulatory capital arbitrage''. These methods are used routinely to lower the e€ective risk-based capital requirements agains...

This paper proposes an unobserved fundamental component of volatility as a measure of risk. This concept of fundamental volatility may be more meaningful than the usual measures of volatility for market regulators. Fundamental volatility can be obtained using a stochastic volatility model, which allows us to `®lterÕ out the signal in the volatility information. We decompose four FTSE100 stock i...

Because of the recent surge in U.S. personal defaults, Congress is currently debating bankruptcy reform legislation requiring a means test for Chapter 7 filers. This paper explores the effects of such a reform in a model where, in contrast to previous work, bankruptcy options and production are explicitly taken into account. Our findings indicate that means testing would not improve upon curren...

ABSTRACT Insurance pricing is subject to stricter regulation in some states than others. This cross-sectional variation, coupled with the occurrence of staggered deregulation several states, enables a powerful test political cost hypothesis that managers manipulate accruals mitigate adverse effects rate regulation. We show insurers understate their loss reserve more regulated regimes, finding c...

ABSTRACT We examine how investment professionals assess the usefulness of financial accounting information depending on their acquisition objectives and preparers' earnings management incentives. conduct a survey experiment based face-to-face interviews with document two main results. First, we find that, compared assigned firm valuation objective, those managerial performance evaluation object...

SUMMARY We examine whether audit engagements where the client has never switched auditors (original auditors) are associated with different fee and quality outcomes, relative to that have experienced an auditor change. document clients original accrue nontrivial savings. Further, we find lower levels of discretionary accruals likelihood misstatements, implying higher quality. also investors app...