Research Lab

Why are banking systems unstable in so many countries—but not in others? The United States has had twelve systemic banking crises since 1840, while Canada has had none. The banking systems of Mexico and Brazil have not only been crisis prone but have provided minuscule amounts of credit to business enterprises and households.

We analyze a model of optimal capital structure and liquidity choice based on a dynamic tradeoff theory for financially constrained firms. In addition to the classical tradeoff between the expected tax advantages of debt and bankruptcy costs, we introduce a cost of external financing for the firm, which generates a precautionary demand for liquidity and an optimal liquidity management policy for the firm.

What is a good banker? What is the economic value added of banks? The economics literature on financial intermediation focuses on the role of banks as deposit-taking institutions and as delegated monitors of borrowers. But this description barely begins to represent what banks do in a modern economy. Besides commercial lending, large banks are engaged in a number of other activities ranging from cash management, trade credit, swaps and derivatives trading and underwriting of securities.

Historical cost accounting deals with uncertainty by deferring the recognition of earnings until the uncertainty has largely been resolved. Such accounting affects both earnings and book value and produces expected earnings growth deemed to be at risk. This paper shows that the earnings-to-price and book-to-price ratios that are the product of this accounting forecast both earnings growth and the risk to that growth.

Over-the-counter (OTC) stocks are far less liquid, disclose less information, and exhibit lower institutional holdings than listed stocks. We exploit these different market conditions to test theories of cross-sectional return premiums. Compared to premiums in listed markets, the OTC illiquidity premium is several times higher, the size, value, and volatility premiums are similar, and the momentum premium is three times lower.

This paper presents a framework for addressing normative accounting issues for reporting to shareholders. The framework is an alternative to the emerging Conceptual Framework of the International Accounting Standards Board and the Financial Accounting Standards Board. The framework can be broadly characterized as a utilitarian approach to accounting standard setting. It has two main features. First, accounting is linked to valuation models under which shareholders use accounting information to values their stakes.

For generations, the Pritzkers, one of the wealthiest and most philanthropic families in the United States, primarily managed their assets in order to enrich the family as a whole, as opposed to generating wealth for individual family members. The Pritzkers were historically publicity shy, but their saga gained much media attention in the early 2000s when some family members questioned the asset distribution and leadership requests of their forefathers.