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The Economics of Insolvency Law: Conference Summary
(51k)
(Issue 13, December 2002)

Insolvency and bankruptcy law affect both financial stability and the efficiency of the financial system. Ex ante, bankruptcy law affects entrepreneurs' incentives to take risk - and so can affect productivity - and the terms on which lenders will lend. Ex post, it provides the framework in which bankruptcies, whether localised or potentially systemic, are resolved. On 27 September 2002, the Bank of England held a conference entitled The Economics of Insolvency Law: Effects on Debtors, Creditors and Enterprise, which addressed these two themes. The conference also discussed public bankruptcy policy, in the light of the publication this year of the Government's Enterprise Act, which includes a number of proposals for UK policy changes in this area. Although the focus of the conference was on corporate and personal bankruptcy, many of the themes discussed are relevant also to sovereign debt workouts, where much work is currently being done in international forums on appropriate policies for crisis resolution.

Is There Still Magic in Corporate Earnings?
(123k)
(Issue 13, December 2002)

This article surveys different earnings measures from the perspective of equity market valuations in the UK and the USA. It reviews three commonly used financial accounting definitions: reported, operating and pro forma earnings. These measures are then compared with national accounts-based measures of aggregate corporate earnings. The strengths and weaknesses of each measure are considered together with their implications for equity market valuations.

Renewing Confidence in the Markets
(52k)
(Issue 13, December 2002)

Enron, WorldCom, and other prominent corporate and accounting disasters demonstrate the devastating effects that diminished investor confidence can have on capital markets and provide proof that the financial reporting system needs improvement. Markets punish uncertainty, and sustained investor fears regarding the quality of financial reporting and corporate governance will have damaging long-term economic effects – in terms of economic growth, job creation, and personal wealth.

Key Resources

Memorandum of Understanding between HM Treasury, the Bank of England and the Financial Services Authority Download PDF (50k)