Disagreement and security design

We study optimal security design when the issuer and market participants agree to disagree about the characteristics of the asset to be securitized. We show that pooling assets can be optimal because it mitigates the effects of disagreement between issuer and investors, whereas tranching a cash-flow stream allows the issuer to exploit disagreement between investors. Interestingly, pooling and tranching can be complements. The optimality of debt with or without call provisions can be derived as a special case. In a model with multiple financing rounds, convertible securities naturally emerge to finance highly skewed ventures

Unionization, Cash, and Leverage

What is the effect of unionization on corporate financial policies? The average unionized firm responds with lower cash and higher leverage to a unionization election than the average firm escaping unionization. However, using a regression discontinuity design I find that the causal effect of unionization is close to zero on average, but heterogeneous across firms. For the subset of large and financially unconstrained firms, the causal effect is positive on leverage and negative on cash; the opposite is true for small and financially constrained firms. These results help reconcile controversially discussed views on how corporate finance and labor interact

(Why) Do Central Banks Care About Their Profits?

We document that central banks are significantly more likely to report slightly positive profits than slightly negative profits. The discontinuity in the profit distribution is (i) more pronounced amid greater political or public pressure, the public’s receptiveness to more extreme political views, and agency frictions arising from governor career concerns, but absent when no such factors are present, and (ii) correlated with more lenient monetary policy inputs and greater inflation. These findings indicate that profitability concerns, while absent from standard theoretical models of central banking, are both present and effective in practice, and inform a theoretical debate about monetary stability and the effectiveness and riskiness of non-traditional central banking

Confidence Cycles

We provide a model that rationalizes variations in confidence of rational agents, both in the time-series and the cross-section. Combining horizon-dependent risk aversion (“anxiety”) and selective memory, we show that over- and underconfidence can arise in the Bayesian equilibrium of an intra-personal game. In the time-series, overconfidence is more prevalent when actual risk levels are high, while underconfidence occurs when risks are low. In the cross-section, more anxious agents are more prone to biased confidence and their beliefs fluctuate more, leading them to buy in booms and sell in crashes. Lastly, fluctuations in confidence can amplify boom-bust cycles

Horizon-Dependent Risk Aversion and the Timing and Pricing of Uncertainty

We address two fundamental critiques of established asset pricing models: that they (1) require a controversial degree of preference for early resolution of uncertainty; and (2) do not match the term structures of risk premia observed in the data. Inspired by experimental evidence, we construct preferences in which risk aversion decreases with the temporal horizon. The resulting model implies term structures of risk premia consistent with the evidence, including timevariations and reversals in the slope, without imposing a particular preference for early or late resolutions of uncertainty or compromising on the ability to match standard moments in the returns distributions

Ultimate Ownership and Bank Competition

We use a uniquely extensive branch-level dataset on deposit account interest rates, maintenance fees, and fee thresholds, and document substantial time-series and cross-sectional variation in these prices. We then examine whether variation in bank concentration helps explain the variation in prices. The standard measure of concentration, the HHI, is not correlated with any of the outcome variables. We then construct a generalized HHI (GHHI) that captures both common ownership (the degree to which banks are commonly owned by the same investors) and cross-ownership (the extent to which banks own shares in each other). The GHHI is strongly correlated with all prices. We use the growth of index funds as an arguably exogenous source of cross-sectional variation of county-level common ownership growth to suggest a causal link from the GHHI to higher prices for banking products

Common Ownership, Competition, and Top Management Incentives

When one firm’s strategy affects other firms’ value, optimal executive incentives depend on whether shareholders have interests in only one or in multiple firms. Performance-sensitive contracts induce managerial effort to reduce costs, and lower costs induce higher output. Hence, greater managerial effort can lead to lower product prices and industry profits. Therefore, steep managerial incentives can be optimal for a single firm and at the same time violate the interests of common owners of several firms in the same industry. Empirically, managerial wealth is more sensitive to performance when a firm’s largest shareholders do not own large stakes in competitors

Electrostatic attraction of nanoobjects - a versatile strategy towards mesostructured transition metal compounds

This highlight summarizes current challenges of mesostructuring and focuses on the scope and the potential of the ELAN – (electrostatic attraction of nanoobjects) strategy in mesostructuring of transition metal compounds. It discusses the limitations of this concept and highlights prominent examples. ELAN exploits the Coulomb attraction between inorganic precursors and polymeric templates in order to prevent macrophase separation. Essential requirements for ELAN are tailor-made, mesoscopic polyelectrolytic templates and charged molecular oligo-ions or stable colloids carrying a surface charge. The ELAN-strategy is highly reliable and opens the way to crystalline, mesoporous transition metal compounds with predefined polymorphism. It also provides the possibility to adjust wall chemistry and reactivity as well as the flexibility to synthesise different mesostructures (spheres, non-woven arrays or hexagonally ordered phases)

Financing Payouts

We study the extent to which firms rely on the capital markets to fund their payouts. We find that 42% of firms that pay out capital also initiate debt or equity issues in the same year, resulting in 32% of aggregate payouts being externally financed. Most firms that simultaneously raise and distribute capital do not generate enough free cash flow to fund their payouts internally. Firms devote more external capital to finance share repurchases than to avoid dividend cuts. Payouts financed by debt, which allow firms to jointly manage their capital structure and liquidity, are by far the most common

Reprinting the classic article on USPHS evaluation methods for measuring the clinical research performance of restorative materials

The original article published by Cvar and Ryge in 1971 on the US Public Health Service (USPHS) Guidelines is virtually inaccessible to current scientists, despite its remarkable impact on clinical dental research. The original article described all the pilot studies that led to the choices for the final USPHS guidelines. However, many of the important basic ideas expressed in the original article, such as evaluator calibration, have been overlooked in recent years. Challenges for effective clinical testing of restorative procedures and materials that were emphasized by those authors are even more relevant today. Therefore, it is totally appropriate to republish the original article by Cvar and Ryge in this issue of Clinical Oral Investigations . This preface to the republication of the original article provides key background information and references to contributions by the many now-famous clinical investigators who were involved with pilot studies. In addition, the USPHS recommendations are critically reviewed. Clinical evaluation of restorative procedures requires (a) choices of clinically relevant criteria, (b) assessment using simple nominal scales, (c) calibration of evaluators, (d) two independent evaluations, and (e) nonparametric statistic analysis that recognizes the patient (and not the restoration) as the independent variable. Only portions of those procedures are being preserved in current clinical investigations. USPHS criteria continue in use until today as part of routine clinical evaluation and as components of standards programs such as the ADA acceptance program. However, in addition, USPHS-like criteria have been appended over the years to produce “modified USPHS guidelines.” These additional criteria include parameters such as postoperative sensitivity, fracture, interproximal contact, occlusal contact, and others. The combination of the original and modified USPHS criteria now have been accepted worldwide but are not necessarily uniformly applied. They constitute the foundation for current considerations of further development of clinical assessment methods for dental restorative procedures.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47873/1/784_2005_Article_17.pd