Research Lab

Beginning with Shimer (2005) and Hall(2005), a recent branch of the business cycle literature has explored the role of wage rigidity in accounting for the statistical characteristics of key labor market variables; in particular high vacancy and unemployment volatility and a high negative correlation between the two. As a further exploration, we extend the Mortensen-Pissarides structure of period-by-period Nash wage bargaining to an environment where there is labor force heterogeneity (permanently employed "insiders" and "outsiders" subject to separations) and limited asset market parti

This paper examines whether firms in noncompetitive industries benefit more from good governance than do firms in competitive industries. We find that weak governance firms have lower equity returns, worse operating performance, and lower firm value, but only in noncompetitive industries. When exploring the causes of the inefficiency, we find that weak governance firms have lower labor productivity and higher input costs, and make more value-destroying acquisitions, but, again, only in noncompetitive industries.

This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that made lenders' negative private assessments about their borrowers public. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of the reaction by other lenders to the same firm.

This paper investigates the question of whether so-called anomalous returns predicted by accounting numbers are normal returns for risk or abnormal returns. It does so via a model that shows how accounting numbers inform about normal returns if pricing were rational. The model equates expected returns to expectations of earnings and earnings growth, so that any variable that forecasts earnings and earnings growth also forecasts required returns if the market prices those outcomes as risky.

Does private regulation work to provide and preserve collective benefits, and if so, when? To answer these questions, we focus on social structure and competitive exclusion. We argue that effective private regulation depends on social structures that support normative control of interested parties. However, competitive dynamics may transform private regulation into an instrument to defend the interest of institutional incumbents.

This paper proposes an accounting for revenues as an alternative to the proposals currently begin aired by the FASB and IASB. Existing revenue recognition rules are vague, resulting in messy application, so the Boards are seeking a remedy. However, their proposals replace the traditional criteria — revenue is recognized when it is both "realized or realizable" and "earned" — with similarly vague notions that require both the identification of a "performance obligation" and the "satisfaction" of a performance obligation.

The measurement and timing of reported revenue is critical to performance measurement and the development of accurate forecasting models. GM used incentives to get customers to buy its vehicles. This case asks students to consider how GM should report the sales so that the data is a valid indication of performance and can be used to accurately forecast future sales.

Recent frauds have questioned the efficacy of the SEC's enforcement program. We hypothesize that differences in firms' information sets about SEC enforcement and constraints facing the SEC affect firms' proclivity to adopt aggressive accounting practices. We find that firms located closer to the SEC and in areas with greater past SEC enforcement activity, both proxies for firms' information about SEC enforcement, are less likely to restate their financial statements.