Compositional dynamics and the performance of the U.S. banking industry
As the U.S. banking industry continuously evolves, changes in industry composition have a direct impact on the aggregate performance of the industry. This paper presents a new decomposition framework for commercial banks and shows that both firm-level changes and dynamic reallocation effects--due to increased market share of successful banks, exit of poor performers, and new entrants--made substantial contributions to changes in profitability and capitalization of the U.S. banking industry from 1976 to 1998. In periods of declining profits, these reallocations were particularly important, ...
Recent revisions to corporate profits: what we know and when we knew it
Initial estimates in the National Income and Product Accounts significantly overstated U.S. corporate profits for the 1998-2000 period. Subsequent revisions reveal that the profitability of the nation's corporate sector in the late 1990s was substantially weaker than "real-time" data indicated. An unexpected surge in employee stock options exercised-and perhaps, in some sectors, firms' inflated statements of profit-may help explain the large downward revisions.
Boards of directors as an endogenously determined institution: a survey of the economic literature
The authors identify the primary findings of the empirical literature on boards of directors. Typically, these studies have sought to answer one of the following questions: How are the characteristics of the board related to profitability? How do these characteristics affect boards' observable actions? What factors affect board makeup and evolution? Across these studies, a number of regularities have emerged - notably, the fact that board composition does not seem to predict corporate performance, while board size has a negative relationship to performance. The authors note, however, that ...
Measures of corporate earnings: what number is best?
Revelations of corporate fraud in 2002 shook the public's confidence in financial reporting and led to calls for reform. Without credible, transparent, and comparable financial information, investors, auditors, and others cannot make decisions that are essential to the efficient functioning of the economy. But while rules can be improved, it is not possible to achieve a rigid standard that applies uniformly to every company. This Economic Commentary explains why.
Are high-quality firms also high-quality investments?
The relationship between corporate reputation and investment results is the subject of ongoing debate. Some argue that high-quality firms ultimately provide superior stock price performance; others counter that stock prices already reflect these firms' prospects for growth and profitability. This study advances the debate by providing fresh evidence that investing in high-quality firms yields above-average returns and that these superior returns continue for up to five years.
Corporate payout policy and managerial stock incentives
We examine how corporate payout policy is affected by managerial stock incentives using data on more than 1100 nonfinancial firms during 1993-97. We find that management share ownership encourages higher payouts by firms with potentially the greatest agency problems--those with low market-to-book ratios and low management stock ownership. We also find that management stock options change the composition of payouts. We find a strong negative relationship between dividends and management stock options, as predicted by Lambert, Lannen, and Larcker (1989), and a positive relationship between ...