In this note we correct several misunderstandings which have arisen since publication of our earlier paper “Law Enforcement Agencies as Multiproduct firms: An Econometric Investigation of Production Costs.” These misconceptions arise regularly in empirical applications of economic theory to...

We use a general model to analyze the optimal intertemporal pricing policy for a monopolist when current and past output play a role in determining future cost and/or demand conditions through, "experience," in production and/or in consumption. As would be expected, the optimal price path...

We analyze the expected value of information about an agent's type in the presence of moral hazard and adverse selection. Information about the agent's type enables the principal to sort/screen agents of different types. The value of the information decreases in the variability of output and the...

Recent empirical research has documented a substantial decrease in average accounting profitability. The phenomenon appears inconsistent with the observation that corporate profit as a fraction of national income as remained stable. This paper shows that the downward trend is fully explicable by...

Recent research in accounting has documented a dramatic increase in the number of firms reporting losses. This increase in losses calls into question the value relevance of earnings numbers. If a firm is likely to be abandoned, its book value will be more relevant than the magnitude of its loss...

In this paper, we examine whether insider share selling in an initial public offering (IPO) influences Ramp;D expenditures. Insiders (managers and venture capitalists) who sell their pre-offering shareholdings might try to increase the IPO offer price (i) by over-investing in Ramp;D to signal...

This research analyzes the recall experience of threeAmerican (Chrysler, Ford, and GM) and three Japanese (Honda, Nissan, and Toyota) automakers during the period 1973-1992 to provide more conclusive evidence that the stock market imposes a reputation penalty on automakers that produce...

Recent research in accounting has documented a substantial increase in the number of loss firms. Existing theories on the valuation of loss firms are based on adaptation/abandonment options or limited liability, assuming that these firms are operationally distressed. In this paper, we show that...

In this study, focusing on the period 1996-2010, we conduct an empirical investigation of how warnings by industry peer firms about future earnings affect CEO compensation structure. These warnings contain information about the industry, signaling dim industry prospects and possibly triggering...

Some CEOs decide voluntarily to issue a warning when they expect a negative earnings surprise. Prior research suggests that warnings contain incremental information beyond actual earnings; warning firms tend to experience permanent earnings decreases. This paper investigates whether compensation...