The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Search results: 4.
The Insurance Is the Lemon: Failing to Index Contracts
Published: 11/12/2019, Volume: 75, Issue: 1 | DOI: 10.1111/jofi.12856 | Cited by: 16
BARNEY HARTMAN‐GLASER, BENJAMIN HÉBERT
We model the widespread failure of contracts to share risk using available indices. A borrower and lender can share risk by conditioning repayments on an index. The lender has private information about the ability of this index to measure the true state that the borrower would like to hedge. The lender is risk‐averse and thus requires a premium to insure the borrower. The borrower, however, might be paying something for nothing if the index is a poor measure of the true state. We provide sufficient conditions for this effect to cause the borrower to choose a nonindexed contract instead.
Capital Share Dynamics When Firms Insure Workers
Published: 4/26/2019, Volume: 74, Issue: 4 | DOI: 10.1111/jofi.12773 | Cited by: 68
BARNEY HARTMAN‐GLASER, HANNO LUSTIG, MINDY Z. XIAOLAN
Although the aggregate capital share of U.S. firms has increased, capital share at the firm‐level has decreased. This divergence is due to mega‐firms that produce a larger output share without a proportionate increase in labor compensation. We develop a model in which firms insure workers against firm‐specific shocks, with more productive firms allocating more rents to shareholders, while less productive firms endogenously exit. Increasing firm‐level risk delays exit and increases the measure of mega‐firms, raising (lowering) the aggregate (average) capital share. An increase in the level of rents magnifies this effect. We present evidence that supports this mechanism.
Thinking about Prices versus Thinking about Returns in Financial Markets
Published: 9/3/2019, Volume: 74, Issue: 6 | DOI: 10.1111/jofi.12835 | Cited by: 63
MARKUS GLASER, ZWETELINA ILIEWA, MARTIN WEBER
Prices and returns are alternative ways to present information and to elicit expectations in financial markets. But do investors think of prices and returns in the same way? We present three studies in which subjects differ in the level of expertise, amount of information, and type of incentive scheme. The results are consistent across all studies: asking subjects to forecast returns as opposed to prices results in higher expectations, whereas showing them return charts rather than price charts results in lower expectations. Experience is not a useful remedy but cognitive reflection mitigates the impact of format changes.
Opening the Black Box: Internal Capital Markets and Managerial Power
Published: 7/16/2013, Volume: 68, Issue: 4 | DOI: 10.1111/jofi.12046 | Cited by: 124
MARKUS GLASER, FLORENCIO LOPEZ‐DE‐SILANES, ZACHARIAS SAUTNER
We analyze the internal capital markets of a multinational conglomerate, using a unique panel data set of planned and actual allocations to business units and a survey of unit CEOs. Following cash windfalls, more powerful managers obtain larger allocations and increase investment substantially more than their less connected peers. We identify cash windfalls as a source of misallocation of capital, as more powerful managers overinvest and their units exhibit lower ex post performance and productivity. These findings contribute to our understanding of frictions in resource allocation within firms and point to an important channel through which power may lead to inefficiencies.