The inherent conflicts of interest in the auditor–client relationship and the unobservability of financial statement quality are likely culprits in the recent corporate scandals such as Enron and WorldCom. The solution proposed here is a financial statement insurance (FSI) mechanism. Instead of appointing and paying auditors, companies would purchase financial statement insurance that provides ...

We study the speculative value of a finitely lived asset when investors disagree and short sales are limited. In this case, investors are willing to pay a speculative value for the resale option they obtain when they acquire the asset. We characterize the equilibrium speculative value as a solution to a fixed point problem for a monotone operator F. A Dynamic Programming Principle applies and i...

This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives but did so at different points in time. Our research design exploits this differential timing of the same regulatory c...

We examine whether institutional investors, and specifically underwriters, have an information advantage over other market participants in new public companies. We focus our attention on a sample of publicly traded firms that have become the target of an IPO-related securities class action lawsuit filed under Section 11 of the 1933 Securities Act between January 1991 and December 2006 and a mat...

In this paper we develop empirical measures for the strength of spillover effects. Modifying and extending the framework by Diebold and Yilmaz (2011), we quantify spillovers between sovereign credit markets and banks in the euro area. Spillovers are estimated recursively from a vector autoregressive model of daily CDS spread changes, with exogenous common factors. We account for interdependenci...

To ensure the fidelity of protein biosynthesis, aminoacyl-tRNA synthetases (aaRSs) must recognize the tRNA identity elements of their cognate tRNAs and discriminate their cognate amino acids from structurally similar ones through a proofreading (editing) reaction. For a better understanding of these processes, we investigated the role of tRNA(Leu) tertiary structure in the aminoacylation and ed...

Banks could achieve substantial improvements of their portfolio credit risk assessment by estimating rating transition matrices within a time-continuous Markov model, thereby using continuous-time rating transitions provided by internal rating systems instead of discrete-time rating information. A non-parametric test for the hypothesis of time-homogeneity is developed. The alternative hypothesi...

This paper presents both the time-series and cross-country evidence on the growth of global equity markets and attempts to shed some light on the sources of equity market growth. I show that for developed countries market size is positively related to correlation of stock markets with the global portfolio, and that it is negatively related to government consumption. For emerging market countrie...

Is the observed large increase in consumer indebtedness since 1970 beneficial for U.S. consumers? This paper quantitatively investigates the macroeconomic and welfare implications of relaxing borrowing constraints using a model with preferences featuring temptation and self-control. The model can capture two contrasting views: the positive view, which links increased indebtedness to financial i...

We explore the relation between international financial integration and the level of entrepreneurial activity in a country. Using a unique data set of approximately 24 million firms in nearly 100 countries in 1999 and 2004, we find suggestive evidence that international financial integration has been associated with higher levels of entrepreneurial activity. Our results are robust to using vari...