do insurers manipulate loss reserves to mask solvency problems abstract we report that insurance firms manage loss reserves to avoid violating certain test ratio bounds known as iris ratios that are used by regulators for solvency assessment in our sample almost two thirds of the firms that would violate four or more iris ratios successfully adjust reserves to reduce the reported number of violations to less than four this finding is significant because four violations usually trigger regulatory intervention our results indicate that non earnings goals are an important influence on discretionary accounting choice they also suggest that reserve manipulation can postpone needed regulatory intervention sometimes for an extended period

does meeting earnings expectations matter evidence from analyst forecast revisions and share prices this paper investigates whether the market rewards firms meeting current period earnings expectations and whether any such reward reflects the implications of meeting expectations in the current period for future earnings or reflects a distinct market premium we document that abnormal annual returns are significantly greater for firms meeting expectations controlling for the information in the current year s earnings we then test whether firms meeting expectations experience higher returns simply because their expected future earnings are also higher we find firms meeting expectations have significantly higher earnings forecasts and realized earnings than firms that do not we find that controlling for these higher future earnings firms meeting expectations in one or two years do not receive a greater valuation than their fundamentals would suggest we find however that the market assigns a higher value to firms that meet expectations consistently controlling for an estimate of the firm s fundamental value

civil conflict democratization and growth violent democratization as critical juncture in this paper we provide an empirical investigation of the interaction between violent conflicts democratization and growth in the third wave of democratization the effect of democratization is weakened when taking into account the incidence of civil conflict the results show that the growth effect of democratization is heterogeneous and depends on the democratization scenario peaceful transitions to democracy have a significant positive effect on growth that is even larger than reported previously in the literature whereas violent transitions have no or even negative growth effects

earnings management and accounting income aggregation quarterly earnings allow aggregation into annual earnings in four different ways fiscal year earnings is one measure of annual earnings the others being earnings for annual periods ending at interim quarter ends we investigate earnings management in fiscal year earnings relative to these alternative measures of firms annual earnings we confirm prior findings in burgstahler and dichev 1997 earnings management to avoid earnings decreases and losses journal of accounting and economics 24 99 126 of discontinuities around zero and prior year earnings in histograms of earnings subsequent research questions whether these discontinuities are evidence of earnings management using histograms of our alternative annual earnings measures we offer evidence suggesting earnings management is responsible for the discontinuities

local policies for dsm the uk s home energy conservation act abstract residential energy use accounts for approximately 28 of total primary energy use in the uk with consumption in this sector forecast to increase due partly to expanding numbers of households finding ways to reduce residential energy consumption must form a key part of the climate change strategies of the uk and all developed countries in 1995 an innovative piece of legislation was passed in the uk devolving residential energy efficiency responsibility to local government under the home energy conservation act heca local authorities are obliged to consider the energy efficiency of private as well as public housing stock authorities were given a duty to produce a strategy for improving residential energy efficiency in their area by 30 in the next 10 15 years this paper describes the enormous variation in the quality of local authorities strategies and discusses reasons for this variation based on a nationwide survey of heca lead officers it considers the opportunities and constraints facing local authorities and what has been achieved to date under the act it also examines how heca fits into the uk s national energy policy and explains the roles of other institutions across the public private and voluntary sector in facilitating implementation of the act finally the paper considers how other countries can learn from the uk s heca experience and can use the act as a template to apply the principle of subsidiarity to this area of environmental policy

the information content of losses abstract this study hypothesizes that because shareholders have a liquidation option losses are not expected to perpetuate they are thus less informative than profits about the firm s future prospects the results are consistent with the hypothesis they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses the liquidation option effect extends to profitable cases where earnings are low enough to make the option attractive alternating explanations for the low informativeness of losses such as mean reversal of earnings are not supported by the tests

on the distribution of education and democracy this paper empirically analyzes the influence of education on democracy by controlling for unobservable heterogeneity and by taking into account the persistency of some of the variables the most novel finding is that an increase in the education attained by the majority of the population is what matters for the implementation and sustainability of democracy rather than the average years of schooling we show this result is robust to issues pertaining omitted variables outliers sample selection or a narrow definition of the variables used to measure democracy

earnings management erroneous inferences based on earnings frequency distributions a vast literature following hayn 1995 and burgstahler and dichev 1997 attributed the so called discontinuities in earnings distributions around zero to earnings management despite recent evidence that these discontinuities are likely caused by other factors researchers and teachers continue to point to the shapes of these distributions as evidence of earnings management we provide three sets of further evidence that these discontinuities are likely caused by factors other than earnings management 1 we provide as an example a detailed analysis of the severe effects of sample selection in a recent study this study erroneously concludes that the shape of an earnings distribution is evidence of earnings management 2 we provide a simple explanation for the shape of the earnings distribution that is most often cited as evidence of earnings management the relation between earnings and prices differs with the magnitude and the sign of earnings and 3 we provide further examples that support the main point of our paper evidence beyond the mere shape of a distribution must be brought to bear before researchers can draw conclusions regarding the presence absence of earnings management

conflict and distribution abstract we develop a behavioral model that links the level and pattern of social conflict to the societywide distribution of individual characteristics the model can be applied to groups that differ in characteristics such as wealth ethnicity religion and political ideology we settle questions of existence and uniqueness of conflict equilibrium conflict is seen to be closely connected with the bimodality of the underlying distribution of characteristics however in general the conflict distribution relationship is nonlinear and surprisingly complex our results on conflict patterns also throw light on the phenomena of extremism and moderation journal of economic literature classification numbers d63 d72 d74

gdp management to meet or beat growth targets abstract we apply the discontinuity methodology from the accounting literature to a political economy setting of gdp reporting and examine whether chinese local governments manage regional gdp numbers we find strong evidence of discontinuities around zero in the distribution of actual minus target gdp growth rates the frequencies of just meeting or beating gdp growth targets are about five four times the frequencies of just missing targets at the prefecture province level the results are stronger for governors with longer tenures and those without political connections to higher level officials as well as for local governments with more resources under their control

a lipsetian theory of voluntary power handover we consider an autocracy where the ruling elite control both the resource wealth and ed ucation policies education prompts economic growth and enriches the budget of the elite however education also increases the awareness of citizens capturing their reluctance to accept a dictatorship and their labor market aspirations and forces the elite to ex pand redistribution or handover the power a power handover leads to a more democratic regime where the elite retains at least partially its economic power this trade offis the backbone of our lipsetian theory of voluntary power handover this theory provides new insights on the positive relationship between economic development education and de mocratization and on the negative relationship between inequality and democratization finally we revisit the resources curse hypothesis within our setting

monitoring motivation and management the determinants of opportunistic behavior in a field experiment economic models of incentives in employment relationships are based on a specific theory of motivation employees are rational cheaters who anticipate the consequences of their actions and shirk when the marginal benefits exceed costs we investigate the rational cheater model by observing how experimentally induced variation in monitoring of telephone call center employees influences opportunism a significant fraction of employees behave as the rational cheater model predicts a substantial proportion of employees however do not respond to manipulations in the monitoring rate this heterogeneity is related to variation in employee assessments of their general treatment by the employer jel d2 j2 l2 l8 m12

accounting earnings and gross domestic product we document that aggregate accounting earnings growth is an incrementally significant leading indicator of growth in nominal gross domestic product gdp professional macro forecasters however do not fully incorporate the predictive content embedded in publicly available accounting earnings data as a result future nominal gdp growth forecast errors are predictable based on accounting earnings data that are available to professional macro forecasters in real time

do hedge fund managers misreport returns evidence from the pooled distribution we find a significant discontinuity in the pooled distribution of monthly hedge fund returns the number of small gains far exceeds the number of small losses the dis continuity is present in live and defunct funds and funds of all ages suggesting that it is not caused by database biases the discontinuity is absent in the 3 months culminating in an audit suggesting it is not attributable to skillful loss avoidance the discontinuity disappears when using bimonthly returns indicating a reversal in fund performance following small gains this result suggests that the discontinuity is caused at least in part by temporarily overstated returns

who controls energy efficiency policy a case study of the energy saving trust abstract the energy saving trust was set up by the last conservative government to run major programmes of investment in energy efficiency to help meet the uk government s targets to reduce carbon dioxide emissions the government was relying on the regulators ofgas and offer to raise the funding required from gas and electricity consumers required rather than providing it from taxation the regulators however felt that they were being expected to introduce taxes by the back door and refused to approve funds on the scale required the government s failure to resolve this problem suggests that competition was a more important goal of energy policy than the achievement of sustainable development despite government statements that they were both important however changes in power generation mean that the uk will meet its year 2000 carbon saving target without the trust this article explores the development of the energy saving trust and the tensions between the roles of the regulators ofgas and offer the government and parliament in the period from 1992 to 1996 the article is based on research undertaken by the author for cserge university of norwich working paper gec 95 35 updated to reflect recent developments

do scaling and selection explain earnings discontinuities abstract earnings distributions commonly exhibit statistically significant discontinuities at zero earnings which are widely interpreted as evidence of earnings management to avoid a loss in contrast durtschi and easton 2005 durtschi and easton 2009 assert that discontinuities are instead explained by some combination of prior researchers choice s of scaling and sample selection as well as a scaling related effect due to a systematic relation between the sign of earnings and market prices resolution of the conflicting interpretations of discontinuities is important because 1 it affects how investors regulators and scholars view earnings management and 2 it demonstrates the importance of a close linkage between theory and research design choices we point out that de provide no evidence that scaling or selection create discontinuities but only evidence showing that changes in scaling or selection eliminate discontinuities we demonstrate why the research designs used by de eliminate discontinuities and why alternative designs using the same data yield statistically significant discontinuities that cannot be attributed to either scaling or selection

determinants of democracy a panel study of over 100 countries from 1960 to 1995 finds that improvements in the standard of living predict increase in democracy as measured by a subjective indicator of electoral rights the propensity for democracy rises with per capita gdp primary schooling and a smaller gap between male and female primary attainment for a given standard of living democaracy tends to fall with urbnization and with a greater reliance on natrual resources democracy has little relation to country size but rises with the middle class share of income the apparently strong relation of democracy to colonial heritage mostly disappears when the economic variables are held constant similarly the allowance for these economic variables weakens the interplay between democracy and religious affiliation however negative effects from muslim and non religious affiliations remain intact

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

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

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

the challenge to uk energy policy an ageing population perspective on energy saving measures and consumption abstract with a focus on the residential sector this paper explores the likelihood of the uk government meeting its energy targets the paper contends that energy policy needs to take into account the interplay of four major factors an ageing population of increasing diversity a cultural inclination for older housing much of which is thermally inefficient levels of fuel poverty and the inexorable rise of consumer spending on leisure related services and goods decisions made by older households both the poorer and the better off may be critical to the success of energy policy among the better off the changing expectations of the baby boomers with their predilection for consumption and travel may have particular impact the paper concludes that much of the reduction in carbon footprint made by older people s choices in heating and insulation may be offset not only by increasing domestic thermal comfort but also potentially by increasing consumables in the home and other consumer lifestyle choices what could be achieved at best may be a shift in energy mix

incentives information and organizational form we model an organization as a hierarchy of managers erected on top of a technology here consisting of a collection of plants in our framework the role of a manager is to take steps to reduce the adverse consequences of shocks that affect the plants beneath him we argue that different organizational forms give rise to different information about managers performance and therefore differ according to how effective incentives can be in encouraging a good performance in particular we show that under certain assumptions the m form multi divisional form is likely to provide better incentives than the u form unitary form because it promotes yardstick competition i e relative performance evaluation more effectively we conclude by presenting evidence that the assumptions on which this comparison rests are satisfied for chinese data

politicians and banks political influences on government owned banks in emerging markets abstract government ownership of banks is very common in countries other than the united states this paper provides cross country bank level empirical evidence about political influences on these banks it shows that government owned banks increase their lending in election years relative to private banks this effect is robust to controlling for country specific macroeconomic and institutional factors as well as bank specific factors the increase in lending is about 11 of a government owned bank s total loan portfolio or about 0 5 of the median country s gdp per election per government owned bank

earnings management the shapes of the frequency distributions of earnings metrics are not evidence ipso facto we provide evidence that the shapes particularly around zero of the frequency distributions of earnings metrics examined in the extant earnings management literature are affected by 1 deflation using for example price or market capitalization 2 sample selection criteria that lead to differential inclusion exclusion of observations to the left of zero versus observations to the right of zero implicit in studies focusing on firms followed by i b e s and explicit in studies partitioning on a variable differing between loss observations and profit observations 3 differences between the characteristics of observations to the left of zero and observations to the right of zero such as market pricing and analyst optimism pessimism or 4 a combination of these factors since the shapes of the frequency distributions of earnings metrics at zero are likely due to one of the above effects we conclude that the shapes cannot be used as ipso facto evidence of earnings management