accounting method choice opportunistic behavior efficient contracting and information perspectives abstract three alternative but not mutually exclusive perspectives on accounting method choice are contrasted the opportunistic behavior efficient contracting and information perspectives much of the empirical work on accounting method choice is based on the opportunistic behavior perspective the malmquist and main and smith papers are attempts to view accounting method choice as a means of improving the monitoring capabilities of contracts which rely on accounting numbers the papers serve as useful vehicles for illustrating the difficulties of delineating a set of maintained assumptions that result in hypotheses about how accounting method choice affects the monitoring characteristics of contracts and distinguishing between hypotheses based on the three perspectives on accounting method choice

discretionary accounting choices and the predictive ability of accruals with respect to future cash flows using a sample of restatement firms and a meet or beat model to classify firms as making discretionary accounting choices for opportunistic meet or beat op mb reasons we show that originally reported earnings and accrual components are less predictive of future cash flows relative to the restated numbers we find the opposite is true for firms classified as making discretionary accounting choices for non op mb reasons we consider a number of competing explanations for these latter results our findings are most consistent with the informational hypothesis weakly consistent with conservative motivated efficient contracting hypotheses but inconsistent with opportunistic contracting and misapplication errors of gaap explanations

discussion of a market based evaluation of discretionary accrual models the use of accrual models has been pervasive in accounting research in the past ten years this literature has sought to examine whether and why managers use discretion in financial reporting the findings suggest that managers use their discretion for a wide range of reasons including to increase their own compensation and protect their job security to communicate their expectations of long term firm performance with investors and to create stockholder wealth at the expense of other stakeholders such as debtholders taxpayers and regulatory bodies of course the power and internal validity of these tests depend critically on whether the models of accruals used in the studies are well specified guay kothari and watts s henceforth gkw paper attempts to provide evidence on this question by modeling the relation between stock returns and discretionary accruals and nondiscretionary earnings gkw then examine whether the five most popular accrual models used in the literature produce discretionary accruals and nondiscretionary earnings that conform to their modeling predictions the findings suggest that even the most effective models the jones and modified jones models do only a modest job of parsing earnings into discretionary and nondiscretionary components taken at face value the findings of the gkw paper have serious consequences for how readers should interpret the findings of earlier earnings management studies however such strong conclusions are

schumacher meets schumpeter appropriate technology below the radar innovation and technological change play an important role in poverty reduction through their contribution to growth their use of factors of production their environmental spillovers the social relations associated with production and the characteristics of the products which they produce it was only after the 1960s that these linkages were identified with the recognition that much of global technological progress was directed to meet the needs of the global rich and was best suited to operation in high income environments the development and diffusion of appropriate technologies was an agenda largely pursued by the not for profit appropriate technology movement however with the global diffusion of innovative capabilities and the rapid rise of incomes of the very poor the second bottom billion innovation for the poor and innovation appropriate for production in low wage and poor infrastructure environments has increasingly become an arena for profitable production the very large size of china and india coupled with their growing technological capabilities and the rapid growth of low incomes makes it likely that they will become the dominant sources of innovation for the poor

the value relevance of intangibles the case of software capitalization the value relevance of intangibles the case of software capitalization author s david aboody and baruch lev source journal of accounting research vol 36 studies on enhancing the financial reporting model 1998 pp 161 191 published by blackwell publishing on behalf of accounting research center booth school of business university of chicago stable url http www jstor org stable 2491312 accessed 14 09 2010 16 12

tax induced earnings management by firms with net operating losses this paper investigates tax induced intertemporal income shifting by firms with net operating loss nol carrybacks for several years following the tax rate reductions of the tax reform act of 1986 tra 86 these firms had incentives to shift recognition of revenues and expenses across years to increase their nol carrybacks by examining how nol firms shift income and cross sectional variation in the extent to which they do so this research extends prior examinations of intertemporal income shifting by profitable firms see scholes wilson and wolfson 1992 and guenther 1994 1

executive incentives and the horizon problem an empirical investigation abstract this paper investigates the hypothesis that ceos in their final years of office manage discretionary investment expenditures to improve short term earnings performance we examine the behavior of r d expenditures for a sample of firms in industries that have significant ongoing r d activities the results suggest that ceos spend less on r d during their final years in office however we find the reductions in r d expenditures are mitigated through ceo stock ownership there is no evidence that the reduced r d expenditures are associated with either poor firm performance or reductions in investment expenditures that are capitalized for accounting purposes

a minsky crisis a model is developed to illustrate hyman minsky s financial crisis theories a key assumption is that the level of wealth in the economy is determined mac roeconomically with the value of firms assets responding to the state of confidence as reflected by discounted quasi rents on capital the second assumption is that there is high substitutability between liabilities of firms and money in the public s portfolio a downward shift in anticipated profits leads wealth to contract and the public to shift portfolio preferences toward money interest rates rise leading to further dampening of expected profits and a debt deflation crisis can occur

overfunded defined benefit pension plan settlements without asset reversions abstract this study examines why firms settle their overfunded defined benefit pension plans under the new accounting standard fasb statement no 88 companies settling their overfunded pension plan can immediately recognize a portion of deffered pension gain as current earnings focusing on settlement transactions unaccompanied by asset reversions we examine financial characteristics of settlement firms including earnings debt covenants management incentive compensation and firms risk and financial structures our results suggest that firms undertake settlement to offset a decline in earnings and mitigate restrictive debt covenant constraints however a settlement firm s systematic risk beta does not change after settlement

an empirical examination of the relation between debt contracts and management incentives abstract prior research on the factors influencing the use of debt covenants restricting dividends and additional borrowing is extended by considering management incentives when alternative incentive variables are considered separately we find covenants have a significant negative relation to ceo cash compensation an insignificant relation to the value of ceo equity held and significant positive relations to both the ratio of the value of ceo equity holdings to cash compensation and the fraction of equity held by the ceo in two stage simultaneous equations models only the latter is significant when jointly considered with each of the other incentive variables

the economic determinants of accounting choices the unique case of equity carve outs under sab 51 abstract since 1983 parents carving out subsidiaries have faced two unusual accounting choices first whether to take the carve out gain into income or directly to equity second whether to provide a book tax on the gain or not we find that parent leverage unexpected write offs in the carve out year the carve out gain size and unexpected future earnings generate predicted probabilities that are concordant with 78 of the observed equity versus net income choices and 73 of tax versus no tax choices we conclude that parents sab 51 decisions reflect forces from efficient contracting earnings management and information signaling theories of accounting choice

efficient contracting and the choice of accounting method in the oil and gas industry abstract this paper s results are consistent with the choice of accounting method in the oil and gas industry being dominated by measurable characteristics of firms and guided by the principles of efficient contracting the results are inconsistent with an alternative hypothesis opportunistic behavior by managers the efficient contracting explanation is also consistent with the empirical findings from earlier studies e g lilien and pastena 1982 and deakin 1979

legitimizing research technology and innovation policies for transformative change combining insights from innovation systems and multi level perspective in a comprehensive failures framework abstract the recent policy debates about orientating research technology and innovation policy towards societal challenges rather than economic growth objectives only call for new lines of argumentation to systematically legitimize policy interventions while the multi level perspective on long term transitions has attracted quite some interest over the past years as a framework for dealing with long term processes of transformative change but the innovation systems approach is still the dominant perspective for devising innovation policy innovation systems approaches stress the importance of improving innovation capabilities of firms and the institutional settings to support them but they are less suited for dealing with the strategic challenges of transforming systems of innovation production and consumption and thus with long term challenges such as climate change or resource depletion it is therefore suggested to consider insights from transition studies more prominently in a policy framework that is based on the innovation systems approach and the associated notion of failures we propose a comprehensive framework that allows legitimizing and devising policies for transformative change that draws on a combination of market failures structural system failures and transformational system failures

market based empirical research in accounting a review interpretation and extension a decade and a half of the most concerted and ambitious research effort in accounting history is evaluated here it is the search into the relationship between publicly disclosed accounting information and the consequences of the use of this information by the major group of usersequity investors as such consequences are reflected in characteristics of common stocks traded in major exchanges this research effort known as market based accounting research mbar obtained its impetus from major developments in finance theory during the late 1950s and early 1960s these were the portfolio selection theory and its offspring the capital asset pricing model capm and the concept of informationally efficient capital markets ecm subsequent developments in information economics agency theory and optimal incentive signaling models were quickly incorporated into mbar while the impetus to this line of research came from other disciplines accounting was not only a beneficiary but also to a modest extent a benefactor mbar is relevant to the study of capital market efficiency the capm information economics and regulation this contribution distinguishes mbar from most accounting areas whose contributions to other disciplines are negligible in

cross jurisdictional income shifting and earnings valuation this research investigates the extent to which u s multinational enterprises mnes engage in tax motivated income shifting between the u s and foreign jurisdictions and whether investors differentially capitalize shifted income based on its true source or its reported source we find evidence that u s mnes facing foreign tax rates that on average exceed the u s statutory tax rate shift taxable income into the united states and that investors recognize firms income shifting patterns when valuing the foreign versus domestic components of reported earnings we examine u s multinational manufacturing companies from 1984 to 1992 to determine the cross sectional relation between firm level foreign profit margins and average foreign tax rates if u s mnes respond to high low foreign tax rates by shifting income into out of the united states then ceteris paribus we expect a negative relation between foreign profit margins and average foreign tax rates in addition

political cost incentives for earnings management in the cable television industry abstract this study tests political costs theory by examining the cable television industry during periods of congressional scrutiny earnings management is measured using discretionary accruals and data are consistent with managerial incentives to mitigate the effects of political scrutiny and potential industry reregulation tests are also done using within sample comparisons of firms firms for which proposed regulations are expected to be more harmful have greater income decreasing accruals and for some tests firms for which cable television operations are more important have greater income decreasing accruals test results are robust to the inclusion of control variables for firm performance and size

the economic consequences of accounting choice implications of costly contracting and monitoring abstract in this paper we review research into the economic consequences of voluntary and mandatory choices of accounting techniques and standards we discuss how the predictions of extant economic consequence theories are driven by contracting and monitoring costs associated with management compensation contracts bond covenants regulation and or political visibility we review empirical tests of economic consequence theories categorize those tests and discuss their strengths and weaknesses the empirical tests reveal two systematic associations with accounting choice size a proxy for political visibility and leverage a proxy for contracting and monitoring costs of lending agreements interpretation of the results is difficult due to general limitations of the tests we conclude by suggesting some directions for future research based on our analysis of the potential payoffs associated with different types of empirical tests

insubstance defeasances security price reactions and motivations abstract this paper examines the bond and stock price reactions to the announcement of insubstance defeasances and the motivations for the transaction we find a reliably positive bond price reaction and a reliably negative stock price reaction however the bond price reaction is much less than would be predicted had the defeased bonds been made riskless we find evidence suggesting that some firms defease to window dress their earnings some defease to avoid restrictions in bond covenants and some defease as a use for excess cash on hand

implications for gaap from an analysis of positive research in accounting based on extant literature we review the positive theory of gaap the theory predicts that gaap s principal focus is on control performance measurement and stewardship and that verifiability and conservatism are critical features of a gaap shaped by market forces we recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets but caution against expanding fair values to financial reporting more generally we conclude that rather than converging u s gaap with ifrs competition between the fasb and the iasb would allow gaap to better respond to market forces

the governance of sustainable socio technical transitions a quasi evolutionary model of socio technical transitions is described in which regimes face selection pressures continuously differentiated transition contexts determine the form and direction of regime change in response to these pressures the articulation of pressures and the degree to which responses are coordinated and based on resources available within the regime define the transition context four alternative contexts are described endogenous renewal re orientation of trajectories emergent transformation and purposive transitions agency and power in the governance of regime transformation are analysed power to affect change depends on regime membership the distribution of resources for change and expectations

aggregation of test statistics an evaluation of the evidence on contracting and size hypotheses abstract more powerful tests of a theory of choice of accounting methods and the effect of changes in these choices on equity values are provided the power increase comes from efficiently aggregating results across studies one conclusion is that at least six variables common to more than one study have explanatory power these variables are managerial compensation leverage size risk and constraints on interest coverage and dividends another conclusion is that the posterior probability that the theory taken as a whole has explanatory power is close to one this conclusion includes the effect of variables that only appear in one study

the double bubble at the turn of the century technological roots and structural implications this paper argues that the two boom and bust episodes of the turn of the century the internet mania and crash of the 1990s and the easy liquidity boom and bust of the 2000s are two distinct components of a single structural phenomenon they are essentially the equivalent of 1929 developed in two stages one centred on technological innovation the other on financial innovation hence the frequent references to that crash to the 1930s and to bretton woods are not simple journalistic metaphors for interpreting the credit crunch and its solution but rather the intuitive recognition of a fundamental similarity between those events and the current ones the paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions it will discuss why it occurred in two bubbles on this occasion it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences

cash flow investment and keynes minsky cycles this paper analyzes a dynamic model with 1 an investment function that emphasizes cash flow 2 a keynesian macroeconomic framework that determines cash flow endogenously 3 a dynamic labor market model that drives wage and price adjustments and 4 boundedly rational expectations simulations from the calibrated model generate endogenous cycles with characteristics described in hyman minsky s research the cycle arises from the link between investment interest rates debt service and cash flow the amplitude and frequency of the cycle are related to the importance of cash flow for investment the dynamics of inflation and the distribution of income

founders heirs and corporate opacity in the united states abstract we argue that information about firm activities can vary substantially in the presence of founder or heir ownership thereby influencing the risks borne by minority investors we explore two hypotheses with regard to these controlling shareholders and corporate transparency focusing on their role as monitor in place and their potential to exploit firm opacity to accrue private benefits of control to test these notions we create an opacity index that ranks the relative transparency of the two thousand largest industrial us firms and find founder and heir ownership in 22 and 25 of these firms respectively our analysis indicates that in large publicly traded companies both founder and heir firms are significantly more opaque than diffuse shareholder firms we also find that founder and heir controlled firms exhibit a negative relation to performance in all but the most transparent firms surprisingly additional tests reveal that concerns about divergences in ownership versus control management type dual class shares and board influence appear to be substantially less important than corporate opacity in explaining the performance impacts of founder and heir control finally we decompose corporate opacity into disclosure and market scrutiny components finding that the disclosure quality component appears to be of greater importance to investors however irrespective of whether these controlling shareholders create or stay in the firm because of corporate opacity our analysis suggests that founders and heirs in large publicly traded firms exploit opacity to extract private benefits at the expense of minority investors

financial reporting tax costs and book tax conformity abstract we investigate the role of book tax conformity in firms financial reporting activities using a unique set of publicly traded firms that were forced to switch for tax purposes from the cash method to the accrual method prior to the mandated change little trade off existed between tax planning and financial reporting goals for these firms after the change recognition criteria for tax and financial reporting purposes became more alike increasing the trade off between financial reporting and tax objectives our results suggest that required use of the accrual method for tax purposes causes firms to defer income for financial statement purposes

analyzing the functional dynamics of technological innovation systems a scheme of analysis various researchers and policy analysts have made empirical studies of innovation systems in order to understand their current structure and trace their dynamics however policy makers often experience difficulties in extracting practical guidelines from studies of this kind in this paper we operationalize our previous work on a functional approach to analyzing innovation system dynamics into a practical scheme of analysis for policy makers the scheme is based on previous literature and our own experience in developing and applying functional thinking it can be used by policy makers not only to identify the key policy issues but also to set policy goals

debt covenant violation and manipulation of accruals abstract this paper examines the abnormal accruals of a sample of 94 firms that reported debt covenant violations in annual reports we expect debt covenant restrictions to influence accounting choices in the year preceding and the year of violation time series and cross sectional models are used to estimate normal accruals in the year prior to violation both models indicate that abnormal total and working capital accruals are significantly positive in the year of violation there is evidence of positive abnormal working capital accruals after controlling for management changes and auditor going concern qualifications

liquidity profit rate cycles in a capitalist economy abstract a monetary economy consisting of independent capitalist firms in which workers spend wages instantly and labor is not scarce is studied the firms create demand for each other s output through their capital outlays and create the backing for money through borrowing when all firms are identical in behavior and initial conditions and the rate of growth of money is constant the economy may be unstable around the equilibrium steady state growth path due to strong accelerator effects and follow a limit cycle trajectory

the investment opportunity set and accounting procedure choice abstract this paper provides evidence on the cross sectional relation between firms investment opportunities their debt and compensation contracts their size and financial leverage and their accounting procedure choices this evidence is important because previous studies hypothesize that the link between firms investment opportunities and their accounting choices helps explain extant results on the size debt equity and bonus plan hypotheses however while i find that firms investment opportunities do affect the nature of their contracts i also find that the traditional explanations for accounting choice are important after controlling for the effects of the investment opportunity set

a conceptual framework for the stock price effects of lifo tax benefits this paper presents a conceptual evaluation of the stock price effects of lifo tax savings in periods of inflation adopting lifo can create cash flow benefits by deferring tax payments whether lifo tax savings are valued by investors has been extensively investigated through examinations of the stock price reaction to initial announcements of lifo adoptions 1 while evidence of positive abnormal returns at announcements of lifo adoptions proportional to the projected nominal lifo tax savings would be viewed as consistent with investors recognizing the expected tax benefits of lifo overall empirical evidence available to date does not indicate that lifo adoption related abnormal returns are positively associated with the size of potential nominal lifo tax savings 2

debt covenant violations and managers accounting responses abstract this paper examines accounting changes costs of default and accounting based covenants violated by 130 firms reporting violations in annual reports i find that managers of firms approaching default respond with income increasing accounting changes and that the default costs imposed by lenders and the accounting flexibility available to managers are important determinants of managers accounting responses i also document that private lending agreements are the first violated that net worth and working capital restrictions are the most frequently violated restrictions and that in 52 percent of the cases lenders require concessions from borrowers to resolve default

empirical research on accounting choice abstract we review research from the 1990s that examines the determinants and consequences of accounting choice structuring our analysis around the three types of market imperfections that influence managers choices agency costs information asymmetries and externalities affecting non contracting parties we conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge we discuss opportunities for future research recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters

geographic income shifting by multinational corporations in response to tax rate changes we investigate geographic income shifting by 191 u s multinational corporations in response to worldwide changes in tax rates during 1984 90 between 1984 and 1986 the united kingdom reduced corporate tax rates from a maximum of 45 to 35 and in 1985 france reduced rates from 50 to 45 following these reductions in european rates the united states reduced top corporate tax rates from 46 to 34 between 1986 and 1988 canadian rates increased between 1984 and 1986 and then decreased through 1989 beginning in 1988 numerous countries enacted tax cuts apparently in response to those that occurred earlier in other countries as discussed in section 3 differential changes in tax rates provide incentives for geographic income shifting by multinational firms we identify two subperiods during 1984 90 in which relative tax rate changes

macroeconomic implications of financialisation a growing literature suggests that financialisation may weaken the performance of non financial corporations and constrain the growth of aggregate demand this paper uses two alternative approaches one derived from skott and one from lavoie and godley and two different settings a labour constrained setting and a dual economy setting to evaluate some of the claims that have been made our analysis which pays explicit attention to financial stock flow relations suggests that the qualitative effects of financialisation are insensitive to the precise specification of household saving behaviour but depend critically on the labour market assumptions labour constrained versus dual and the specification of the investment function harrodian versus kaleckian

corporate compliance with debt covenants in this paper i present and test a model of corporate compliance with the debt covenant requiring payment of a current obligation this study adds to the empirical literature on forecasting financial distress by showing conditions under which debt default may be a rational economic decision by the firm s shareholders this analysis departs from empirical financial distress studies which are often not linked to an underlying economic theory the focus on covenant default also extends the literature which has modeled bankruptcy bulow and shoven 1978 and liquidation decisions titman 1984 but which has not considered a common first symptom of financial distress covenant default briefly the model examines the costs that influence shareholders decision to comply with or violate a particular debt covenant payment of a current obligation these costs include those associated with bondholders reaction to possible default the model predicts that shareholders will default when holding other factors constant i interest rates have declined relative to coupon rates stated in the debt issue ii the probability of paying future obligations is high and iii the cost of obtaining funds to pay the obligation is high the model also predicts when stockholders and bondholders will renegotiate the debt contract and the amount of wealth transferred in the renegotiation finally the

mandated accounting changes and debt covenants the case of oil and gas accounting abstract the relationships among mandated accounting changes bond covenants and security prices has been the focus of several studies these studies have provided mixed evidence on the existence of a bond covenant effect on security prices this paper suggests that inconclusive prior results are a consequence of inappropriately measuring the default risk of debt using an option pricing framework it is shown that the debt to equity alone is not an adequate measure of default risk in particular both the debt to equity ratio and the total risk of the firm are necessary to adequately model the bond covenant effects of an accounting change these theoretical propositions are supported by the empirical analysis of the security market reaction to changes in oil and gas accounting

discussion of empirical research on accounting choice abstract this discussion considers four aspects of the survey paper on empirical accounting choice research by fields lys and vincent implications of the authors selection of an expansive definition of accounting choice and their decision to classify this research by managerial motives implications of the authors decision to include implementation decisions in their definition of accounting choice implications of the authors call for research on the consequences of accounting choice including the costs of defective accounting choices and the benefits of superior choices implications of the authors call for a reconsideration of research designs that explicitly consider groups of accounting choices

the taxable and book income motivations for a lifo layer liquidation this study examines the potential determinants of lifo liquidations using a multivariate tobit model 1 unlike the univariate analysis used in prior lifo liquidation studies e g davis kahn and rozen 1984 and tse 1990 our multivariate analysis takes into account both the correlations among these potential determinants and the magnitude of lifo liquidations simple correlation analysis indicates that the sales changes and earnings changes of lifo liquidation firms are highly correlated thus while univariate support for both the declining sales and declining earnings explanations of lifo liquidations could indicate that both explanations are correct it could also be the case that support for either explanation stems from the high correlation between sales changes and earnings changes our multivariate approach helps avoid such ambiguities in interpretation and supports two conclusions first

a stagnationist model of economic growth in an economy subject to persistent excess capacity demand related factors will play a key role in determining patterns of secular change this thesis has a long history in econ omics sometimes in the underworld and occasionally at the height of fashion as recounted by rowthorn 1982 recent manifestations in the first world are the theories of monopoly capitalism of baran and sweezy 1966 and steindl 1952 who in turn follow kalecki 1971 hobson 1902 luxemburg 1951 and the marx of realisation crises and reproduction schemes in volume ii of capital other radicals such as boddy and crotty 1975 add a profit squeeze explanation of the cycle which underlays the dynamics of the growth model specified here in developing countries difficulties in both realisation and sectoral proportions are emphasised as obstacles to growth witness lustig s 1980 review of latin american structuralist theory and dutt s 1984 model which formalises an ongoing controversy in india about how income redistribution might affect prospects for industrialisation all these authors are stagnationist in assuming that both the growth rate and the level of capacity utilisation can be different under different conditions of income distribution and or macroeconomic policy their preferred policies will presumably lead to greater equality increase utilisation or step up growth they typically ask two analytical ques tions how does output respond in the short run to shifts in the income distribution how do output adjustments feed back into distributional dynamics especially under conditions when price and wage inflation rates may be influenced by employment levels productivity changes and conflicting income claims in what follows we set out a simple model to address these questions and explore the implications for macroeconomic policy of the answers that arise since the approach is not familiar to economists with a standard training a verbal description of the growth model is given first those who wish to jump directly into a formal presentation can proceed to section 1 output x is assumed to meet demand in an instantaneous short run we measure activity as the ratio of firms net cash inflow to the value of capital stock i e the rate of profit r during the short run the price level p is fixed by a mark up rule p 1 x wb where r is the mark up rate w the money wage and b the labor output ratio with this rule the share of profits or mark up income in the value of output is r l t let u stand for the output capital ratio or capacity utilization xik by simple identity

asymmetric treatment of reported pension expense and income amounts in ceo cash compensation calculations abstract we provide evidence that ceo cash compensation is relatively less sensitive to pension expense than pension income suggesting that compensation committees shield ceo cash compensation from pension expense amounts we also provide evidence that managers use relatively higher expected rate of return estimates when reporting pension income suggesting that managers select income increasing accounting estimates in response to compensation committees greater emphasis on pension income in ceo cash compensation determinations pension cost amounts represent a unique setting to examine such behavior as their effect on ceo cash compensation can be detrimental or beneficial but arise from the same underlying economic activity

macrodynamics of debt regimes financial instability and growth this paper develops a post keynesian dynamic model of capacity utilisation and growth in which the supply of credit money is endogenous and firms debt position and thus the financial fragility of the economy a la hyman minsky is explicitly modelled the interest rate is set by banks as a markup over a base rate exogenously determined by the monetary authority the banking markup varies with changes in capacity utilisation while the debt ratio varies with changes in the rates of interest capital accumulation and growth regarding dynamics it is shown the possibility of relating the stability properties of a system with the interest rate and the debt ratio as state variables to the prevailing minskyan regime hedge speculative or ponzi

managing interacting accounting measures to meet multiple objectives a study of lifo firms abstract using a sample of lifo users we examine the strengths and weaknesses of adopting a simultaneous equations approach to study managers adjustments of interacting accounting measures that meet multiple objectives we focus on the importance of considering differences in the costs and the effectiveness of adjusting accounting measures in addition we examine managers objectives in subsequent years and how adjustments reversals affect those objectives although generally consistent with earlier studies of lifo inventory adjustments our results indicate that modelling interacting accounting measures such as other current accruals and depreciation leads to differing conclusions about the role of taxes

capital adequacy ratio regulations and accounting choices in commercial banks abstract this study examines a commercial bank manager s incentives to reduce regulatory costs imposed when the bank s capital adequacy ratio falls below its regulatory minimum it also tests the general political sensitivity hypothesis that a manager seeks to reduce political costs incurred when revenue is unusually large tests of adjustments to the loan loss provision loan charge offs and securities gains and losses attempt to control for exogenous economic conditions and previous investing decisions results are consistent with hypotheses associating accounting adjustments with capital adequacy ratio guidelines but fail to support the political sensitivity hypothesis

environmental disclosures regulatory costs and changes in firm value abstract union carbide s chemical leak in bhopal india during december 1984 resulted in approximately 4 000 deaths and 200 000 injuries this study examines the market reaction of chemical firms other than union carbide to this catastrophe evidence indicates that a significant negative intra industry reaction occurred however firms with more extensive environmental disclosures in their financial report prior to the chemical leak experienced a less negative reaction than firms with less extensive disclosures this result suggests that investors interpreted such disclosures as a positive sign of the firm managing its exposure to future regulatory costs

demand driven inequality endogenous saving rate and macroeconomic instability this article examines consumption dynamics in a cambridge model of growth and distribution the model endogenises the workers saving rate and incorporates out of equilibrium dynamics explicitly the analysis identifies a new mechanism of macroeconomic instability that emerges from the interaction between the kaldorian process of demand driven inequality and the workers saving behaviour the mechanism can generate perpetual cycles where the upwards phase is characterised by a prolonged period of falling saving rate and increasing income inequality the article discusses the empirical relevance of the formal analysis the article discusses the empirical relevance of the analytic results

annual bonus schemes and the manipulation of earnings abstract using confidential data of executive specific short term bonus plans we investigate the extent to which executives manipulate earnings to maximize the present value of bonus plan payments as such this paper extends the work of healy 1985 like healy we find evidence consistent with the hypothesis that managers manipulate earnings downwards when their bonuses are at their maximum unlike healy we find no evidence that managers manipulate earnings downwards when earnings are below the minimum necessary to receive any bonus we demonstrate that healy s results at the lower bound are likely to be induced by his methodology

an empirical examination of debt covenant restrictions and accounting related debt proxies abstract prior studies of discretionary accounting choices have generally relied on one or more proxy variables to measure closeness to debt covenant restrictions without actually examining the existence or extent of restrictive covenants this study tests the validity of the most commonly used proxy the debt equity ratio by examining its relation to actual debt covenant restrictions for a random sample of u s firms the results indicate that several versions of the debt equity ratio capture the existence and tightness of retained earnings restrictionsand the existence of net tangible asset and working capital restrictions but are unrelated to four other covenant restrictions

choice of accounting method by not for profit institutions accounting for investments by colleges and universities abstract this study reports a preliminary empirical investigation into the relation between the choice of investment accounting method used by colleges and universities and factors such as type of institution endowment size and returns and debt because these institutions use fund accounting the effects of the choice of investment accounting method can reasonably be isolated from other accounting decisions the results indicate that the selection of investment accounting method is influenced by type of institution endowment size and returns but not by debt covenants

technological revolutions and techno economic paradigms this paper locates the notion of technological revolutions in the neo schumpeterian effort to understand innovation and to identify the regularities continuities and discontinuities in the process of innovation it looks at the micro and meso foundations of the patterns observed in the evolution of technical change and at the interrelations with the context that shape the rhythm and direction of innovation on this basis it defines technological revolutions examines their structure and the role that they play in rejuvenating the whole economy through the application of the accompanying techno economic paradigm this over arching meta paradigm or shared best practice common sense is in turn defined and analysed in its components and its impact including its influence on institutional and social change

discussion of accounting discretion in fair value estimates an examination of sfas 142 goodwill impairments beatty and weber examine an accounting choice that managers made upon adoption of statement of financial accounting standards 142 whether to record a goodwill asset impairment as a cumulative effect of an accounting change at the time of adoption or delay the recognition of such an impairment to the future perhaps indefinitely when they would be recorded as expenses in earnings from continuing operations the authors consider several factors that might influence management s reporting of transition effects including contracting equity market incentives and regulatory forces participants at the 2005journal of accounting research conference questioned whether such a complex accounting decision can be captured with simple linear models and noisy proxy variables while also speculating upon whether the results would generalize to other settings in this discussion i summarize beatty and weber s research highlight its contribution to the accounting literature and provide a record of the main issues raised by the conference participants 1 summary

the effect of book income adjustment in the 1986 alternative minimum tax on corporate financial reporting abstract this study examines the effect of the book income adjustment provision in the 1986 alternative minimum tax amt on financial accounting practices a model is developed to identify firms that are more susceptible to the book income adjustment the changes in financial accounting practices for firms affected by the amt are then examined our results indicate that firms that are likely to be affected by the book income adjustment shift timing and permanent differences across years to reduce the impact of the amt

the structuration of socio technical regimes conceptual foundations from institutional theory abstract in recent years socio technical transitions literature has gained importance in addressing long term transformative change in various industries in order to account for the inertia and path dependency experienced in these sectors the concept of the socio technical regime has been formulated socio technical regimes denote the paradigmatic core of a sector which results from the co evolution of institutions and technologies over time despite its widespread acceptance the regime concept has repeatedly been criticized for lacking a clear operationalization as a consequence empirical applications tend to depict regimes as too monolithic and homogenous not adequately considering persistent institutional tensions and contradictions these are however crucial for assessing transition dynamics in this paper we revisit two concepts from institutional theory that enable an explicit identification of socio technical regimes and more generally a specification of the semi coherence of socio technical systems first we will show that levels of structuration can be conceptualized as degrees of institutionalization thereby treating institutionalization as a variable with different effects on actors the stability of the system and thus the potential for change secondly we draw on the institutional logics approach to characterize the content of various structural elements present in a system and to trace conflicts and contradictions between them we illustrate this approach with an empirical in depth analysis of the transformation of the australian urban water sector since the 1970ies

empirical tax research in accounting this paper traces the development of archival microeconomic based empirical income tax research in accounting over the last 15 years the paper details three major areas of research i the coordination of tax and non tax factors ii the effects of taxes on asset prices and iii the taxation of multijurisdictional international and interstate commerce methodological concerns of particular interest to this field also are discussed the paper concludes with a discussion of possible directions for future research r 2001 elsevier science b v all rights reserved jel classification m41 h25 k34 g32 f23

earnings management to avoid earnings decreases and losses this paper provides evidence that firms manage reported earnings to avoid earnings decreases and losses specifically in cross sectional distributions of earnings changes and earnings we lind unusually low frequencies of small decreases in earnings and small losscs and unusually high frequencies of small increases in earnings and small positive income we find evidence that two components of earnings cash flow from operations and changes in working capital are used to achieve increases in earnings we present two theories based on stakeholder use of information processing heuristics and prospect theory about the motivation for avoidance of earnings decreases and losses

resolving lifo uncertainty a theoretical and empirical reexamination of 1974 75 lifo adoptions and nonadoptions this study reexamines the lifo adoption decision by focusing on what can be inferred about the sophistication of managers and investors decision making through analyzing the effect on stock prices of the resolution of publicly disclosed uncertainty about the lifo adoption nonadoption decision i establish and test implications of three models of the lifo adoption nonadoption decision the traditional tax benefit model an extension of kang s 1988 real value model and a functional fixation model each model yields distinct predictions about the mean excess stock return when uncertainty about the lifo adoption nonadoption decision is resolved and about the cross sectional relations between individual excess stock returns and several explanatory

minsky models a structured survey minsky s ideas have recently gained prominence in the mainstream as well as in the heterodox literature however there exists no agreement upon the formal presentation of minsky s insights the aim of this paper is to survey the literature and identify differences and similarities in the ways through which minskyan ideas have been formalised we distinguish between the models that focus on the dynamics of debt or interest with no or a secondary role for asset prices and the models in which asset prices play a key role in the dynamic behaviour of the economy within the first category of models we make a classification between i the kalecki minsky models ii the kaldor minsky models iii the goodwin minsky models iv the credit rationing minsky models v the endogenous target debt ratio models and vi the minsky veblen models within the second category of models we distinguish between i the equity price minsky models and ii the real estate price minsky models key limitations of the models and directions for future research are outlined

the hygienic transition from cesspools to sewer systems 1840 1930 the dynamics of regime transformation this article addresses the topic of transition and system change and proposes endogenous regime transformation as alternative transition path to technological substitution using sociological and institutional insights the dynamics of regime transformation are conceptualised two characteristics are pressure from outsider groups and adjustments in cognitions norms and formal rules enacted by regime insiders the transformation perspective is illustrated with a historical case study the hygienic transition from cesspools to integrated sewer systems in the netherlands the case study is used to make additions to the transformation perspective particularly with regard to tactical and strategic games

normative contestation in transitions in the making animal welfare concerns and system innovation in pig husbandry previous studies of system innovations mainly focused on historical cases that were driven by commercial motivations of pioneers and entrepreneurs this article investigates a system innovation in the making that is driven by normative concerns such as sustainability or animal welfare initially formulated by outsiders like special interest groups our central research question is how when and why is normative contestation of existing regimes effective in influencing the orientation of transitions in the making the conceptual framework enriches innovation studies and the multi level perspective with insights from social movement theory smt and political science smt is used to analyze the build up of normative pressure through framing resource mobilization and political opportunity structures from political science we use the notion of multiple streams in our analysis a problem regulatory market and technology stream the research design consists of a comparative case study of pig husbandry systems one case analyses the sub sector of pregnant sows where normative pressures after several decades led to the changes advocated by the contestants the second case concerns the sub sector of pig fattening where normative pressure was less successful the difference is partly explained by the normative pressure for pregnant sows being larger than for fattening pigs the other part of the explanation is that in the first case normative pressure aligned better with the three other streams regulatory market and technology to lead to the changes desired by the contestants 2010 elsevier b v all rights reserved

the impact of taxes on the choice of divestiture method abstract this paper estimates the magnitude of tax costs and their impact on the decision to divest assets via a taxable sale rather than a tax free spin off we find that the tax costs are substantial averaging 8 of market value of the divested assets and that cross sectional variation in tax costs has a large impact on managers choice of divestiture method our results are consistent with two explanations first managers are willing to incur avoidable tax costs to gain earnings and cash flow benefits second managers choose taxable sales because the acquisition premia on the sales exceed the avoidable tax costs

aggregation of test statistics abstract in the preceding paper christie provides three tests to facilitate formal inferences in survey papers that examine related empirical studies those tests reinforce the view that accounting technique choice is related to variables that may proxy for contracting and monitoring costs in the market and political processes however the contribution of the tests is limited because the fundamental question of the relation between the empirical regularities and the theory remains unexamined

discretionary behavior with respect to allowances for loan losses and the behavior of security prices abstract the study examines the capital market pricing of discretionary and nondiscretionary components of a major accrual in the banking industry the allowance for loan losses the analysis employs a two stage approach in which the allowance account is first decomposed into estimates of its nondiscretionary and discretionary components the second stage evaluates the market s valuation of the estimates of the components evidence suggests that the capital market perceives the allowance to be comprised of two components a nondiscretionary component which is negatively priced and a discretionary component whose incremental pricing coefficient is positive

1974 lifo excess stock return and analyst forecast error anomalies revisited in this paper i reexamine three lifo anomalies reported by ricks 1982 and biddle and ricks 1988 with the aim of investigating the degree of analyst and investor sophistication in responding to fiscal 1974 lifo adoptions biddle and ricks henceforth br s first anomaly is that their sample of 1974 lifo adopters realized a reliably negative mean excess stock return at their annual earnings announcement br view this as anomalous because 1974 lifo adopters switched voluntarily and almost always obtained substantial tax savings second br find even firms who publicly disclosed lifo adoptions in advance of their annual earnings announcements earned negative returns at the annual earnings announcement date taken at face value this result implies an opportunity

the allowance for uncollectible accounts conservatism and earnings management we study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart bad debt expense we find that the allowance is conservative and that it has become more conservative over time conservatism may however facilitate earnings management we find that firms manage bad debt expense downward and even record income increasing bad debt expense to meet or beat analysts earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense further we find that firms manage bad debt expense downward by drawing down previously recorded over accruals of bad debt expense that have accumulated on the balance sheet an implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings

deep transitions emergence acceleration stabilization and directionality abstract industrial society has not only led to high levels of wealth and welfare in the western world but also to increasing global ecological degradation and social inequality the socio technical systems that underlay contemporary societies have substantially contributed to these outcomes this paper proposes that these socio technical systems are an expression of a limited number of meta rules that for the past 250 years have driven innovation and hence system evolution in a particular direction thereby constituting the first deep transition meeting the cumulative social and ecological consequences of the overall direction of the first deep transition would require a radical change not only in socio technical systems but also in the meta rules driving their evolution the second deep transition this paper develops a new theoretical framework that aims to explain the emergence acceleration stabilization and directionality of deep transitions it does so through the synthesis of two literatures that have attempted to explain large scale and long term socio technical change the multi level perspective mlp on socio technical transitions and techno economic paradigm tep framework

bank profitability leverage and financial instability a minsky harrod model this paper develops a stock flow consistent macroeconomic model where bank profitability and bank leverage play a crucial role in the determination of firms liability structure the model assumes that banks credit supply depends on bank profitability as well as firms profit interest ratio our analysis suggests that a strong expansionary effect of bank profitability on credit supply tends to destabilise the economy leading to cycles driven by the interactions between firms and banks financial behaviour the formal framework is used to discuss hyman minsky s proposal in his stabilizing an unstable economy for the control over the permissible leverage ratios and payout ratios of banks copyright oxford university press

the effect of accounting procedure changes on ceos cash salary and bonus compensation abstract this paper examines the effect of accounting procedure changes on cash salary and bonus compensation to ceos we estimate whether there is an adjustment to the statistical relation between compensation and corporate earnings following changes that lower earnings fifo to lifo inventory valuation and that raise earnings accelerated to straight line depreciation the results indicate that 1 subsequent to these changes salary and bonus payments are based on reported earnings rather than earnings under the original accounting method and 2 the potential compensation effect of the changes is small compared to the effect of economy or industry wide changes in compensation

a positive theory of flexibility in accounting standards abstract we develop a positive theory of accounting standards when standards generate network externalities and differ in the amount of reporting discretion or flexibility they provide firms we evaluate expected value maximizing firms preferences between two standards regimes rigid and flexible as the number of firms subject to each standard varies as the organization of the securities market varies and as the mapping from the underlying economics of the firms transactions to the accounting reports produced under the two standards vary we also compare firms preferences between the two regimes to the preferences of profit maximizing traders in the firms securities

an income strategy approach to the positive theory of accounting standard setting choice abstract this paper is designed to provide additional evidence on the positive theory of accounting policy choice by combining individual accounting principles into firm income strategies these strategies were the dependent variable in a probit analysis where the independent variables were size management compensation industry concentration ratio systematic risk capital intensity and the total debt to total asset ratio the results indicate that four of these factors size management compensation concentration ratio and the total debt to total asset ratio have a significant association with the choice of a firm s income strategy this test provides strong evidence consistent with the positive theory of accounting standard setting choice we also present evidence that smaller firms and or firms in less concentrated industries do not appear to make accounting policy choice decisions that are consistent with this theory

exploring the impact of internal corporate governance on the relation between disclosure quality and earnings management in the uk listed companies this study investigates the impact of internal corporate governance on the relation between disclosure quality and earnings management in the uk listed companies in particular whether governance mechanisms have deterrent effect on earnings management similar to firms disclosure quality unlike prior literature we measure a number of board and audit committee related governance instruments three disclosure quality proxies i e investor relation magazine award forward looking disclosure and analyst forecast accuracy and the modified jones model to test the hypotheses of the study on a matched pair sample data of investor relation magazine award winning and non winning firms our findings in the ols and sensitivity analyses using heckman procedure and 2sls regressions consistently report a significant negative association between earnings management and disclosure quality for all proxies in restraining earnings management in contrast corporate governance variables are mostly insignificantly related to earnings management this provides an emerging trend of the outperformance of disclosure quality over internal governance mechanisms in lessening earnings management these findings warrant due attention of the policy makers investors corporate firms and other stakeholders in shaping a high quality disclosure and governance regime in corporate settings to mitigate managerial manipulations of earnings across the countries in the world

additional evidence on bonus plans and income management abstract we extend healy 1985 by examining the relation between discretionary accruals and bonus plan bounds for a sample of 102 firms for the 1980 1990 period contrary to healy we find that when earnings before discretionary accruals fall below the lower bound managers select income increasing discretionary accruals and vice versa we believe that our results are more consistent with the income smoothing hypothesis than with healy s bonus hypothesis however mechanical selection bias in portfolio formation cannot be entirely ruled out as an alternative explanation for our results

taxes and transfer pricing income shifting and the volume of intra firm transfers this paper extends harris 1993 by linking the level of taxes paid by firms and the profits they report in various geographic areas to the volume of intergeographic area transactions within firms if firms use the prices for goods transferred internationally to minimize their global taxes it seems reasonable that the greatest opportunities and incentives for such manipulation exist for firms with large amounts of international intrafirm sales and with large differences in tax rates between regions following harris 1993 these firms constitute the flexibility partition with the greatest incentives and opportunities for transfer price management a

transition pathways for a uk low carbon electricity future abstract achieving long term targets for greenhouse gas emissions reductions such as the uk s legally binding target of reducing its emissions by 80 by 2050 will require a transition in systems for meeting and shaping energy service demands involving radical substitution to low carbon supply technologies and improvements in end use energy efficiency this paper describes the development and high level analysis of a set of transition pathways to a uk low carbon electricity system explaining key features of the core pathways developed and the distinctiveness and value of the approach the pathways use an action space concept to explore the dynamic interactions between choices made by actors which are influenced by the competing governance framings or logics that different actors pursue the paper sets out three core transition pathways market rules central co ordination and thousand flowers in which market government and civil society logics respectively dominate it summarises the key technological and institutional changes in these pathways and the roles of actors in bringing these about this leads to an identification of the key risks to the realisation of each of the pathways and of the challenges for individuals businesses social movements and policy makers in taking action to bring them about and sustain them

smoothing income in anticipation of future earnings abstract recent theory argues that concern about job security creates an incentive for managers to smooth earnings in consideration of both current and future relative performance we find support for this theory our evidence suggests that when current earnings are poor and expected future earnings are good managers borrow earnings from the future for use in the current period conversely when current earnings are good and expected future earnings are poor managers save current earnings for possible use in the future however sensitivity analysis indicates that we cannot rule out selection bias as a potential alternative explanation for our findings

multi regime dynamics in the analysis of sectoral transformation potentials evidence from german utility sectors abstract network bound infrastructure systems as electricity gas water and telecommunications are currently undergoing transformations on various levels and dimensions liberalization technological innovations and socio cultural dynamics are part of this for analyzing these ongoing transformation dynamics as well as exploring future developments of utility systems a theoretical concept is necessary which spans production consumption and governance different levels and also different sectors this paper argues that the multi level perspective is a fruitful starting point allowing the identification of interrelated transformation dynamics in production consumption and governance but that multi regime dynamics need more emphasis particularly in a future oriented analysis

long waves and short cycles in a model of endogenous financial fragility this paper presents a stock flow consistent macroeconomic model in which financial fragility in firm and household sectors evolves endogenously through the interaction between real and financial sectors changes in firms and households financial practices produce long waves the hopf bifurcation theorem is applied to clarify the conditions for the existence of limit cycles and simulations illustrate stable limit cycles the long waves are characterized by periodic economic crises following long expansions short cycles generated by the interaction between effective demand and labor market dynamics fluctuate around the long waves

deposit insurance and wealth effects the value of being too big to fail this paper investigates the effect on bank equity values of the comptroller of the currency s announcement that some banks were too big to fail and that for those banks total deposit insurance would be provided using an event study methodology we find positive wealth effects accruing to tbtf banks with corresponding negative effects accruing to non included banks we demonstrate that the magnitude of these effects differed with bank solvency and size we also show that the policy to which the market reacted was that suggested by the wall street journal and not that actually intended by the comptroller the role of deposit insurance has become a topic of increasing debate advocates argue that by removing the incentive to run deposit insurance protects individual financial institutions from instability in the intermediation process thereby providing stability to the financial system as a whole 1 the recent rise in bank failures and the concomitant crises in the s l industry however demonstrate that this stability is not guaranteed moreover critics note that deposit insurance may introduce incentive problems and wealth effects into the financial system both of which can impede the effective functioning of any deposit insurance system these problems have prompted concern about the structure of the current deposit insurance system and have led to numerous proposals regarding its restructuring 2 this paper investigates one aspect of this debate by analyzing the effect on bank equity values of the policy decision to insure completely some banks but not others specifically in september 1984 the comptroller of the currency testified before congress that some banks were simply too big to fail tbtf and that for those banks total deposit insurance would be provided while not explicitly naming the banks the comptroller admitted that this policy would apply to the eleven largest banks using an event study methodology we analyze