Blinder (1998) argues that more open public disclosure of central bank policies may enhance the efficiency of markets. We examine this claim by studying whether the Federal Reserve System's 1994 policy shift toward more open disclosure improved or worsened the predictability of financial...

When financial market frictions exist, executives may have to decide which investment activities to reduce when internal funds decrease. Expenditures on research and development (R&D) may be particularly vulnerable because of the long-term nature of innovative activity. We find that equity...

This paper examines the relationship between the volatility of output growth and the average growth rate of output in developed economies using the Generalized Auto-Regressive Conditional Hetereoskedasticity-in-mean (GARCHM) framework. The results indicate that that volatility is correlated with...

Do business cycles cause firms to alter the composition of research and development (R&D) expenditures? This article uses aggregate data on U.S. firm-financed R&D expenditures during the 1956-96 period to address this issue. The mix of R&D expenditures changes over the business cycles with firms...

Business cycles might affect the ability of firms to finance R&D, since firms rely on cash flow to finance most R&D activities. However, business cycles also influence the incentive to perform R&D. The opportunity cost of funds devoted to R&D falls during recessions, since the return on...

This paper finds that inventive activity, as measured by firm-financed R&D expenditures, is procyclical. In addition, the "lost" R&D during recessions is larger than the "extra" R&D during expansions so the overall effect of the business cycle is to reduce firm-financed R&D during the 1957 5o...

This paper examines how executive compensation influences the market value of the firm's assets. After controlling for endogeneity, we find that boards have set the incentive to incur risk (vega) to maximize shareholder value, but that incentives to increase returns (delta) do not maximize...

We use Tobin’s q models of investments to estimate the relationship between corporate governance and the level of innovative activity. Simple ordinary least squares (OLS) models suggest that poor governance reduces innovative activity. However, OLS results are sensitive to controlling for...