Economics Insights @ CBS

Industries differ widely in how much managerial discretion, or latitude of action, they allow. This research contributes to the reliable and valid measurement of this important but hard-to-measure construct. We found that (1) a panel of academics showed very high consistency in rating managerial discretion in diverse industries, (2) a panel of security analysts agreed strongly with the academics, and (3) the panel ratings were highly related to archival indicators of discretion posited by Hambrick and Finkelstein.

We give a unified presentation of stability results for stochastic vector difference equations Y_n+1 = A_n ⊗ Y_n ⊕ B_n based on various choices of binary operations ⊕ and ⊗, assuming that {(A_n, B_n), n ≥ 0} are stationary and ergodic. In the scalar case, under standard addition and multiplication, the key condition for stability is E[log |A₀|]<0. In the generalizations, the condition takes the form γ <0, where γ is the limit of a subadditive process associated with {A(n), n≥0}.

Theoretical work on financing costs under asymmetric information has linked shifts in firms' internal funds and investment spending, holding constant investment opportunities. An impediment to convincing tests of these models is the lack of firm-level data on the relative cost of internal and external funds. We use a tax experiment, the surtax on undistributed profits in the 1930s, to identify firms' relative cost of internal and external funds by calculating surtax margins.

This article analyzes the time variation in conditional means and variances of monthly and quarterly excess dollar returns on Eurocurrency investiments. All results are based on a vector autoregression with weekly sampled data on exchange-rate changes and forward premiums of three currencies. Both past exchange-rate changes and forward premiums predict future forward-market returns. Moreover, past forward-premium volatilities predict the volatility of exchange rates. Expected forward-market returns are very variable and persistent and exhibit marked comovements.