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

structural change in urban chinese food preferences we undertake a range of tests for structural food preference change in urban china using provincial level panel data from 2002 to 2010 we introduce a time transition function into the generalized quadratic almost ideal demand system gqaids to represent consumer preferences we apply this system to evaluate the demand structure for seven food groups the use of the gqaids specification relaxes many empirical demand system restrictions associated with previous analyses of structural preference change our findings suggest that chinese food preferences are continuing to evolve

the derived demand for consolidated financial reporting abstract during the latter half of the 1930s australian taxation law changes induced companies to adopt a holding company legal structure which increased agency costs associated with external financing this paper argues that contracting practices designed to minimize these costs played an important part in the evolution of consolidated financial reporting consistent with this view the likelihood of consolidation is found to be a function of the presence of cross guarantees management s share of a firm s equity and the number and type of subsidiaries

an assessment of the current structure of food demand in urban china we evaluate the current structure of food demand in urban china by using household expenditure survey data from five provinces two complementary analyses are undertaken first an aggregate analysis based on a fractional logit model is used to examine how households allocate food expenditures across the food at home fah and food away from home fafh categories this is followed by a disaggregated analysis of how households allocated their fah expenditures across 12 commodity categories a quadratic almost ideal demand system quaids is used we find evidence of significant food purchase substitution and complementarity

tricks with hicks the easi demand system we invent implicit marshallian demands which combine desirable features of hicksian and marshallian demands we propose and estimate the exact affine stone index easi implicit marshallian demand system like the almost ideal demand aid system easi budget shares are linear in parameters given real expenditures however unlike the aid easi demands can have any rank and its engel curves can have any shape over real expenditures easi error terms equal random utility parameters to account for unobserved preference heterogeneity easi demand functions can be estimated using gmm or three stage least squares and like aid an approximate easi model can be estimated by linear regression

the propensity for local traders in futures markets to ride losses evidence of irrational or rational behavior abstract behavioral studies of individual traders decisions indicate that the disposition effect the propensity of traders to ride losses yet realize gains is motivated by psychological rather than rational economic considerations consistent with previous studies by heisler rev futures markets 13 1994 793 odean j finance 53 1998 1775 and locke and mann do professional traders exhibit loss realization aversion working paper george washington university 2000 we find evidence of a disposition effect for both on floor professional futures traders locals and a matched sample of non local traders after controlling for potential differences in trader characteristics comparisons reveal a stronger disposition effect among locals than non local traders given that locals must trade profitably to survive it is improbable that they are more irrational in their loss riding than non locals to the contrary evidence is provided that paper losses for local traders are more likely than for non locals to become either realized or paper gains by the time of the next transaction this result is consistent with the hypothesis that locals by their presence on the trading floor have privileged albeit short lived information on order flow that allows them to form relatively accurate probability predictions of the direction and strength of short term market price shifts

agreements between firms and the technological life cycle model evidence from information technologies abstract contrarily to most previous contributions which have addressed the issue of cooperative agreements essentially in a perspective of comparative statics in this paper a model is proposed that relies on the technological trajectory notion suggested by evolutionary theories and emphasizes the relevance of the technological and market dynamics in explaining why and to what extent firms have recourse to agreements in particular it is claimed that the propensity of firms towards collaborative ventures and the characteristics of the cooperation depend upon the phase of the technological life cycle of the industry branch in which the cooperation takes place based on a cross sectional analysis of 45 industry branches in the information technology industrial system the paper also provides empirical evidence supporting the argument that the propensity towards agreements and the nature of the agreements concluded do change during the technological life cycle to this end it takes advantage of the arpa database developed at the polytechnic of milan and containing detailed information on over 2 000 agreements concluded in the 1980 1986 period all over the world in the semiconductor data processing and telecommunications industries

accounting for retail land sales analysis of a mandated change abstract this study assesses the stock market s reaction to a series of events leading up to a mandated change in accounting for retail land sales evidence is found to support the conclusion that the market reacted to some of these events in a manner consistent with the effects of the accounting change on debt annagement contracts a distinctive aspect of the analysis is the efficient use of security returns data to detect market reactions and to derive empirical distributions of test statistics employed the analysis is extended by a model for grouping regression equations known as seemingly unrelated regressions however the gains from this extension are modest

stock returns and volatility a firm level analysis abstract it has been previously documented that individual firms stock return volatility rises after stock prices fall this paper finds that this statistical relation is largely due to a positive contemporaneous relation between firm stock returns and firm stock return volatility this positive relation is strongest for both small firms and firms with little financial leverage at the aggregate level the sign of this contemporaneous relation is reversed the reasons for the difference between the aggregate and firm level relations are explored

multivariate tests of the zero beta capm abstract a cross sectional regression test csrt of the capm is developed and its connection to the hotelling t2 test of multivariate statistical analysis is explored algebraic relations between the csrt the likehood ratio test and the langrange multiplier test are derived and a useful small sample bound on the distribution function of the csrt is obtained an application of the csrt suggests that the crsp equally weighted index is inefficient but that the inefficiency is not explained by a firm size effect from february to december

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

an empirical assessment of endogeneity issues in demand analysis for differentiated products this article explores the issue of price and expenditure endogeneity in empirical demand analysis the analysis focuses on the u s carbonated soft drink market we test the null hypothesis that price and expenditures are exogenous in the demand for carbonated soft drinks using an almost ideal demand system aids specification we strongly reject exogeneity for both prices and expenditures we find that accounting for price expenditures endogeneity significantly impacts demand elasticity estimates we also evaluate the implications of endogeneity issues for testing weak separability over the last few decades strong linkages between economic theory and econometric methods have stimulated much empirical analysis of consumer behavior e g deaton and muellbauer 1980b the basic approach involves estimating marshallian demand functions expressing quantities consumed as functions of prices and household expenditures the usual practice is to treat prices and expenditure as exogenous variables in this article we question the validity of these exogeneity assumptions especially when focusing on the demand for differentiated products 1 this is particularly important to the extent that food consumption typically involves differentiated products in market economies we also examine the interactions between endogeneity of prices expenditure in demand systems and the testing for weak separability of consumer preferences

quality quantity and spatial variation of price this paper develops and implements a method for estimating price elasticities of demand using cross sectional household survey data geographically clustered households report unit values which when corrected for quality effects and for measurement error indicate the underlying spatial variation in prices and can be matched to variation in demand patterns a simple model of quality choice is proposed while the correction for measurement error exploits the clustered design of such surveys data from a 1979 household survey from the ivory coast are used to estimate price elasticities for beef meat fish cereals and starches copyright 1988 by american economic association

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 impact of sfas no 8 on equity prices of early and late adopting firms abstract this study examines the economic consequences of statement of financial accounting standards no 8 sfas no 8 compared to a matched control group both early adopters and late adopters of sfas no 8 exhibited significantly negative excess returns in the exposure draft release period even after adjusting for a size effect in january weighted least squares and ordinary least squares cross sectional regressions were compared the late adopter regressions weakly support contracting and political cost theories

predicting the effects of sugar sweetened beverage taxes on food and beverage demand in a large demand system a censored exact affine stone index incomplete demand system is estimated for 23 packaged foods and beverages and a numeraire good instrumental variables are used to control for endogenous prices a half cent per ounce increase in sugar sweetened beverage prices is predicted to reduce total calories from the 23 foods and beverages but increase sodium and fat intakes as a result of product substitution the predicted decline in calories is larger for low income households than for high income households although welfare loss is also higher for low income households neglecting price endogeneity or estimating a conditional demand model significantly overestimates the calorie reduction

agglomeration advantages and capability building in industrial clusters the missing link accumulation of technological capability is crucial for industrial growth and competitiveness of firms particularly in the context of liberalisation and increasing international economic integration the article sheds new light on the forces driving capability building by complementing the micro economic perspective on learning with a meso economic perspective that takes account of interaction effects arising from firms embeddedness in regional networks the missing link at the interface between the two levels is explored by means of a taxonomy linking various agglomeration advantages to investments in technological effort the framework results in new policy relevant insights about the factors underpinning the acquisition of capabilities in comparison to conventional studies a case study about farm equipment manufacturing in pakistan s punjab province is used as an empirical illustration

is western europe losing the technological race abstract using a variety of indicators this paper compares technological levels in japan the usa and w europe there is no justification for assuming general european technological backwardness whilst it lags in electronics and since 1975 has had a relatively slow rate of growth of innovative activities it also has sectors of strength chemicals machinery production engineering and countries whose relative commitments of resources to innovative activities are at least equal and sometimes superior to those of japan and the usa frg sweden switzerland its main policy challenges are to increase the rate of growth of innovative activities in lagging countries and to ensure pervasive applications of information technology similarly there is no convincing evidence that w europe is relatively backward in converting technology into economically efficient innovations some policy problems are significant in all three regions skill shortages whilst others are in the usa and w europe short term planning horizons of top management particular european problems are the effects of social legislation on worker flexibility and mobility of national regulations on intra european competition and of slow rates of growth of output on the growth of innovative activities japan and the usa have their problems with the latter continuously under challenge from the former and increasingly specialised in defence and raw materials related technologies

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

the magnitudes of financial statement effects and accounting choice the case of the adoption of sfas 87 abstract we examine the accounting choice decision in the context of the timing of adoption of sfas 87 unlike most prior studies we consider interactions between firm characteristics and the magnitudes of the financial statement effects of an accounting decision we expect that including interactions will both enhance the ability to explain accounting choice and facilitate distinction between omitted variables ball and foster 1982 and hypothesized relations results are consistent with these expectations

structural change in the impact of income on food consumption in china 1989 1993 china is undergoing a marked transition in its diet and nutritional status patterns this study determines the structural change in the impact of income on food consumption in china during 1989 93 utilizing data from a longitudinal study of 3800 households in china evidence points to a shift in the relationship between income dietary structure and total nutrient intake at the macrolevel overall it is noted that the increase in income over time in the country coincided with a shift in the demand for inferior and normal food groups in addition there was a pronounced increase in the income elasticity for more luxury foods during the specified period while less superior goods became more inferior over this 4 year span such an increase in income elasticities for total energy and for energy from fat suggest a worsening of the composition of the diet in ways that are linked to obesity and obesity related diseases as incomes continue to rise in view of this several implications for the formulation of future nutrition policies in china are cited

determinants of intramethod choice in the oil and gas industry abstract procedural flexibility can have a substantial impact on reported costs revenues expenses and balance sheet valuations until 1978 oil and gas companies had considerable flexibility in applying full cost and successful efforts a unique opportunity to measure the income effect of firms procedural choices occurred when the sec specified the exact procedures that must be followed by oil and gas producers when they account for exploratory and development costs under both the full cost and successful efforts methods in complying with the new rules firms were required to adjust retained earnings retroactively to reflect what it would have been if the new procedures had been in effect all along these retained earnings adjustments provide a measure of the income effect of procedural choices this study shows that economic incentives influence the procedural accounting choices which were made by oil and gas producers the same economic incentives also influence the choice of full cost or successful efforts finally the discriminatory ability of firms economci incentives is most powerful when firms reporting strategies are defined in terms of both choice of accounting methods and procedural applications within those methods

evidence on the effect of bond covenants and management compensation contracts on the choice of accounting techniques the case of the depreciation switch back abstract provisions of bond indenture agreements and management compensation contracts are examined to derive testable implications concerning management s incentives to choose among alternative accounting techniques the hypotheses are subjected to empirical examination by investigating the voluntary change from accelerated to straight line depreciation for financial reporting purposes only the methodology utilized incorporates an expectations model of accounting earnings in an attempt to separate out of the effects of earnings announcements from accounting change announcements which are often concurrent the evidence from both price and non price data is not consistent with the general hypothesis that bond covenants and management compensation contracts are important determinants of the decision to change depreciation techniques five potential explanations for the results are offered

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

quality variation and quantity aggregation in consumer demand for food viewing the problem of quality variation in consumer demand for food as a problem of valid aggregation over goods leads to new insights the simple sum of physical quantities used as the measure of demand in the quality literature is found to be a theoretically arbitrary and potentially misleading measure of demand when goods are heterogenous alternative measures of demand derived from restrictions on quality variation consumer preferences or relative prices are investigated a hypothetical example illustrates the use of a hicksian composite commodity assumption the empirical as well as conceptual merits of the various measures are discussed the usual assumption made about prices in a cross section analysis of household food expenditures is that all households are facing the same prices estimation of price elasticities of demand is commonly left to time series researchers who get price information from intertemporal indices recently however there has been renewed interest in the otential of cross section analysis for estimation of price elasticities of demand for food especially when surveys collect data on both household expenditures for food items and on the physical quantities purchased

permanent versus transitory components of annual earnings and estimation error in earnings response coefficients abstract previous research has generally estimated unexpected earnings as the change relative to the previous year assuming that shocks to annual earnings are purely permanent in the presence of transitory components of annual earnings we predict that using earnings changes as a proxy for unexpected earnings causes earnings response coefficients to be understated and the estimation error to be negatively cross sectionally correlated with persistence the negative correlation causes the association between earnings response coefficients and persistence to be overstated we use the ima 1 1 model to capture transitory components of annual earnings and obtain results that are consistent with our predictions

inward technology transfer and competitiveness the role of national innovation systems this paper examines the role of national innovation systems in the inward transfer of technology that has underpinned the transformation of japan and other east asian economies since 1945 the economies that have benefited most from inward technology transfer have national innovation systems that have strengthened their national absorptive capacity this capacity relies primarily on investments in scientific and technical training and on economic policies that enforce competition among domestic firms the particular channels for inward technology transfer the identity of any strategic industries targeted for public intervention and the overall level of a nation s trade restrictions are ail of secondary importance a central theme of global economic change during the postwar period has been the application in less developed countries of technologies developed within economically advanced regions this phenomenon underpinned the post 1945 transformation of japan and other east asian economies and influenced the reconstruction of western european economies after world war ii the application of externally developed technologies within latecomer economies is hardly unique to the postwar period however samuel slater s introduction of british textile manufacturing is but one example of inward technology transfer in the nineteenth century us economy and david 1992 traces the origins of patent monopolies to efforts by medieval european city states and nations to attract experts in industrial arts to practice their craft within these jurisdictions both international technology flows and government efforts to influence them for national competitive advantage thus have ample historical precedent several characteristics nevertheless distinguish the post 1945 era from earlier historical periods the influence of international technology transfer on national economic development has increased as the postwar development of such economies as taiwan and south korea has relied much less on natural resource endowments than nineteenth

fair value accounting effects on banks earnings volatility regulatory capital and value of contractual cash flows abstract we investigate fair value accounting critics assertions by restating earnings and regulatory capital to reflect banks disclosed investment securities fair values we find 1 fair value based earnings are more volatile than historical cost earnings but share prices do not reflect the incremental volatility 2 banks violate regulatory capital requirements more frequently under under fair value than historical cost accounting fair value based violations help predict regulatory capital violations but share prices do not reflect this potential increased regulatory risk only historical cost violations are market information events 3 share prices reflect interest rates changes even though investment securities contractual cash flows are fixed

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

performance fee contract change and mutual fund risk abstract we examine the effect that an exogenously specifically governmentally required change in compensation contract had on a managerial decision we find that a group of mutual funds changed their portfolio risk levels after they were forced to change their performance fee schedules their portfolio risk choices differed predictably from a randomly selected group of nonperformance fee funds and a group of performance fee funds that were not required to change their compensation contracts in addition the affected mutual funds lost both shareholders and assets around the time of the imposition of the restriction while the other funds exhibited little change or gained assets and shareholders

subperiod aggregation and the power of multivariate tests of portfolio efficiency abstract when testing portfolio efficiency empiricists usually perform tests using subperiods and aggregate the results in some manner although the power of individual subperiod tests has been studied previously little is known about the power of the aggregate test power is evaluated here through simulations using two different aggregation techniques aggregate power is substantially higher than that for a single subperiod for example in one scenario the aggregate power is 0 77 over a sixty year period but only 0 17 for each five year subperiod in addition the level of power depends on the method of aggregation

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

determinants of the corporate decision to capitalize interest abstract until 1974 firms could choose within gaap to capitalize or expense interest costs associated with capital expenditures the predominant practice had been to treat interest as a period expense however in 1974 the securities and exchange commission imposed a moratorium on further adoption of interest capitalization by non regulated firms this study empirically examines economic factors potentially influencing firms decisions to expense or capitalize interest prior to the sec moratorium we hypothesize that the choice may be affected by 1 the existence of management compensation agreements tied to reported earnings 2 debt covenant constraints and 3 the political costs for some firms of reporting higher earnings when compared to the control group our findings are that 1 the frequency of explicit management compensation packages was not greater for the interest capitalization group 2 firms with financial ratios closer to likely debt agreement constraints on dividends interest coverage and leverage tended to elect interest capitalization and 3 other than the largest firms in the politically sensitive petroleum refining industry the larger firms were more likely to capitalize interest

the u s national innovation system origins and prospects for change in recent years the concept of national innovation systems has attained considerable currency and interest although a precise definition of a national innovation system is difficult analyses of the japanese and u s national innovation systems have implicitly defined them as the array of public and private institutions and organizations within an economy that fund and perform rd nelson 1993 interest in national innovation systems stems in part from a growing acknowledgment of the contributions to national economic welfare of superior performance in the commercialization and adoption of new technologies this awareness in turn has been heightened by the innovative and economic strength of postwar japan

the demand for food quality in rural china many studies of food demand do not use actual prices but unit values obtained by dividing expenditures by the quantity consumed this can bias empirical analyses because unit values are not exogenous market prices they reflect household food quality choices within each food category this article develops a framework for assessing the resulting bias in income and price elasticities of demand and applies the framework to data for rural china empirical results indicate that households in rural china tend to consume higher quality food as income increases with a greater sensitivity to income for basic foods than for luxury foods copyright 2009 oxford university press

economic determinants of accounting policy choice the case of current cost accounting in the uk this study seeks to identify economic and financial characteristics that distinguish three groups of companies classified by response to the u k s mandatory cca standard ssap 16 as loyal compliers early defectors and hard line noncompliers three major explanatory variables emerge leverage firm size and the fixed assets to total assets ratio overall results suggest that a major motivation for compliance was lower income reporting especially as an argument for continuing recognition of cca for tax and regulatory purposes the belief that noncompliance was largely motivated by preparation costs is discounted

quantifying the structure of food demand in china an econometric approach this article examines food demand structure and its dynamics for 11 commodities in urban china the analysis is based on household level expenditure survey data for two cross sectional surveys of chinese households pertaining to food expenditure patterns during 1995 and 2003 pre committed components of commodity demands that are insensitive to economic variables are explored we use the generalized quadratic almost ideal demand system gqaids for its empirical superiority to the generalized almost ideal demand system gaids and estimate the associated parameters via full information maximum likelihood procedure fiml accounting for endogeneity of total expenditures on food for home consumption fah we also use quality adjusted commodity unit values to control for quality differences resulting from commodity aggregation and food choice furthermore we derive gqaids elasticity formulas and estimate income elasticities without restrictions the results partially support the hypothesis that an average chinese household has incorporated elements of western diet fine grains into traditional chinese food diet over time moreover the outcome of a simple test developed here points to possible preference changes for a majority of food staples under study

cross sectional association between abnormal returns and firm specific variables abstract abnormal returns market model prediction errors are the subject of many event studies in accounting and finance literature conditional on the event of interest researchers have recently used cross sectional regressions to examine relations between abnormal returns and firm specific variables this paper demostrates that non constant variences and covariances in market model residuals across firms introduced bias in the estimated slope coefficients of the independent variables i e the expected signs of the estimated slope coefficients can be predicted a priori a method is develope to removed the bias in the estimated slope coefficiets and is found to be effective this method explicitly takes the dependence among abnormal returns across firms into account methods that assume abnormal returns across firms to be independent do not control for such bias

an econometric analysis of demand for food quantity and quality in urban china this article offers an analytical framework for studying consumer demand for food quality based on a theory consistent demand model namely the exact affine stone index specification importantly it accounts for unobserved consumer and regional heterogeneity and allows for arbitrary engel curves the empirical value of our framework is illustrated in an econometric analysis of demand for food quality in china evaluating possible structural changes in consumer food expenditures in china is of paramount importance given the ever increasing global role of china and the implications of the structural food preference changes for the global food system the major findings emerging from this study indicate that income is an important determinant of demand for food quality and quantity with the relatively more affluent provinces having a higher affinity for food quality

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

fair value disclosures by bank holding companies abstract this paper examines the value relevance of fair value data disclosed under sfas 107 by banks for 1992 and 1993 collectively the evidence suggests differences between fair and book values of financial instruments are associated with market to book ratios however fair value disclosures for financial instruments other than securities are value relevant only in limited settings in addition only in 1992 are fair value variables associated with market to book ratios after incorporating existing historical cost information further analysis suggests the weaker 1993 results are not necessarily due to increased measurement error in fair value numbers

on cross sectional analysis in accounting research abstract this paper examines cross sectional analysis procedures common to many market based accounting research papers both the economic and econometric properties of levels and returns studies are discussed topics covered include the relations between the accounting studies and cash flow valuation models the role of expectations of accounting variables deflators spurious inference risk adjustment and its relation to growth size and leverage residual dependence dependence among explanatory variables and the effect of scale differences across firms major conclusions are that market value is the correct deflator in returns studies and that levels and returns studies are economically but not econometrically equivalent

determinants of corporate pension funding strategy abstract several hypotheses concerning pension funding strategy are tested in a cross sectional regression model on a sample of 255 firms results are consistent with the following explanations 1 finance incentives tax benefits and financial slack for high level funding 2 labor incentives for low level funding and 3 financial statement incentives relating to political costs for high level funding and debt contracting costs for low level funding pension funding strategy appears to be complex involving tradeoffs between funding incentives the nature of these interactions and tradeoffs remains to be clarified through future research

the relevance of the value relevance literature for financial accounting standard setting another view this paper explains that value relevance research assesses how well accounting amounts reflect information used by equity investors and provides insights into questions of interest to standard setters a primary focus of financial statements is equity investment other uses of financial statement information such as contracting do not diminish the importance of value relevance research value relevance questions can be addressed using extant valuation models value relevance studies address econometric issues that otherwise could limit inferences and can accommodate and be used to study the implications of accounting conservatism r 2001 elsevier science b v all rights reserved jel classification m41 m44 g12

the effects of debt covenants and political costs on the choice of accounting methods the case of accounting for r d costs abstract until 1974 firms could capitalize or expense all or part of their research and development r d costs managerial choice between these two alternatives is hypothesized to be affected by the existence of debt covenants which employ accounting numbers relating to leverage interest coverage and ability to pay dividends in addition the use of public versus private debt is hypothesized to affect the accounting choice due to differential renegotiation costs lastly a political cost hypothesis is tested this study uses a multivariate statistical technique the generalized jackknife the results suggest that firms which capitalized r d costs were more highly levered used more public debt were closer to dividend restrictions and were smaller than firms which expensed r d costs

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

a structural model of the analysis of retail market power the case of fluid milk we derive a structural model of firm behavior that is composed of the generalized quadratic almost ideal demand system to represent both consumers milk preferences and firm profit maximization conditions that allow for a range of competitive scenarios the importance of this specification is found in its fuller representation of consumer preferences as opposed to the linear approximate almost ideal demand system used in previous analyses we apply this structural framework to investigate retailer conduct in the sale of beverage milk in a u s market using product level data our lerner index estimates show that retailers are not perfectly competitive however this deviation is small copyright 2012 oxford university press

weighted trace minimisation estimation of demand systems abstract it is shown that the small sample performance of the ml standard errors in a symmetry constrained demand system can be substantially improved by placing restrictions on the covariance matrix

evidence of the impact of mandatory changes in accounting principles on corporate loan agreements abstract the theory in this paper predicts that mandatory changes in accounting princples can affect the measurement rules defined in restrictive covenants in firms lending agreements consequently those mandatory changes can have an impact on the value of a firm s equity even if the changes appear to be merely cosmetic this contracting cost theory is tested by examining of both event related and cross sectional abnormal performance of the equity of a sample of firms when the accounting princples board changes accounting princples for business combinations the theory provides at best in incomplete explanation of the observed abnormal performance

the effect of owner versus management control on the choice of accounting methods abstract this paper examines the relationship between the ownership control status of firms and the accounting methods they adopt the arguments of watts and zimmerman s positive theory are integrated with those of managerial economists to generate the prediction that management controlled firms are more likely than owner controlled firms to adopt accounting methods which increase reported earnings this prediction is inconsistent with fama s hypothesis that the market for managerial talent will prevent management controlled firms from acting differently than owner controlled firms this paper compares the depreciation methods used by a sample of management and owner controlled firms for financial reporting purposes the comparison considers and controls for the factors of firm size leverage and the depreciation method used for tax reporting purposes the comparison reveals that there is a significant difference in the depreciation methods adopted by management controlled and owner controlled firms for financial reporting purposes

abandoning the transactions based accounting model weighing the evidence abstract i develop a benchmark for evaluating whether fair values disclosed by banks differ from investors estimates of the market value of financial assets and liabilities using this benchmark i conclude that the hypothesis that disclosed fair values closely approximate investors estimates should be rejected i present evidence suggesting that the procedure used in establishing fair values results in an understatement of the value of financial assets an an overstatement of liabilities i also conclude that the reaction of bank stocks to the adoption of sfas 105 107 and 115 is more consistent with regulatory concerns and not with potential adverse effects of those statements for contracting

demand reduction in multi unit auctions with varying numbers of bidders theory and evidence from a field experiment recent auction theory and experimental results document strategic demand reduction by bidders in uniform price auctions the present article extends this area of research to consider the effects of varying the number of bidders our theoretical model predicts that demand reduction should decrease with an increase in the number of bidders considerable demand reduction remains even in the asymptotic limit although truthful bidding yields profits very close to those of equilibrium play we experimentally confirm several of our predictions by examining bidding behavior of subjects in an actual marketplace auctioning dozens of sportscards using both uniform price and vickrey auction formats

accounting for interest by real estate developers this paper investigates accounting for interest by australian real estate developers it argues that management s choice of accounting technique is the result of ex ante contracting to prevent management opportunistic behavior rather than a manifestation of opportunistic behavior per se the argument provides a richer description of accounting choice and explains why in australia leverage and the accounting method choice are correlated in the absence of bond covenants the argument also explains why inconsistent with political cost arguments larger firms are more likely to capitalize than expense interest

debt covenants and accounting choice abstract in this issue duke and hunt and press and weintrop show that leverage is significantly related to the existence of and closeness to accounting based debt covenants alternative rationales for this relation are presented the theory requires more rigorous specification to define closeness to covenants and determine which measure of leverage produces a more appropriate proxy for closeness to covenants then healy and palepu investigate a sample of firms close to their dividend restriction and find in general they are no more likely than other firms to change accounting methods their sample selection criteria reduces the generalizability of their results

organizations firms and institutions in the generation of innovation abstract the purpose of this paper is to develop the innovation system analysis by bringing together the institutional and organizational dimensions of the process of innovation at the firm level the objective is to start elaborating a systemic theory of innovation in firms the paper summons up the contributions and limits of organizational and institutional approaches to innovation this preliminary investigation leads to a series of relevant questions in a second section an attempt is made to overcome the dichotomy and make progress towards a more exhaustive and better articulated representation of the innovation process considered at the firm level

cross sectional dependence and problems in inference in market based accounting research this paper provides a framework and some empirical evidence to evaluate the seriousness of problems in inference that arise in stockreturn based studies when the data are cross sectionally dependent the study is motivated on the grounds that statistical procedures designed to address such problems are often infeasible and even when they can be implemented they sometimes introduce other more serious difficulties thus researchers have frequently adopted an approach that ignores the cross sectional dependence e g ordinary least squares ols the objective of this paper is to help identify the contexts in which ignoring the dependence would lead to serious misstatement of significance levels cross sectional dependence in stock returns data is likely to exist when at least some of the returns are sampled from common time periods this would be the case in all studies of the reaction of stock prices to a

gaids a generalised version of the almost ideal demand system abstract aids is a popular model in empirical demand literature in this paper a generalised version of aids gaids is presented estimated and statistically tested evidence from italian household data suggests rejection of aids also when demographic effects are considered

association between accounting performance measures and stock prices a test of the life cycle hypothesis abstract this paper posits that stock market response to two accounting performance measures sales growth and capital investment is a function of firm life cycle stage firms are grouped into various life cycle portfolios using dividend payout sales growth and age as predicted the empirical results indicate a monotonic decline in the response coefficients of unexpected sales growth and unexpected capital investment from the growth to the stagnant stages additional analysis suggests that this relation is not driven by a firm size effect risk differences or measurement error in the proxies for performance measures

an investigation of capital market reactions to pronouncements on fair value accounting this paper examines the impact of twenty three pronouncements related to fair value accounting fva rules on equity prices of financial institutions the results document that announcements that signal an increased decreased probability of issuance of fva standards produce negative positive abnormal stock price reactions for sample banks further the magnitude of the stock price reactions is negatively related to a bank s primary capital ratio and positively related to the ratio of the book value of the investment portfolio to total assets and the ratio of the difference between the market and book value of the investment portfolio to total assets

political costs and an intraperiod accounting choice for export tax credits abstract this study examines the effects of political and debt contracting costs on an intraperiod accounting choice export tax credits that new zealand companies receive may be credited to sales ot to income tax expense compared to the credit to sales method the tax reduction method reduces a company s reported tax rate and interest coverage ratio both of which could have adverse economic consequences the results indicate the credit to sales method is preferred by large companies that attract political scrutiny because of their low tax rates the level of a firm s interest coverage is also related to that accounting choice

an empirical analysis of the economic implications of fair value accounting for investment securities abstract this paper analyzes security returns of bank holding companies and insurance companies during periods surrounding the adoption of sfas 115 we find bank share prices were negatively affected by the examined events but find little share price reaction for insurance companies our evidence suggests banks were adversely affected by the standard because of problems with the standard s market value accounting approach cross sectional analysis of event period returns shows that banks that more frequently traded their investments with longer maturing investments and that are more fully hedged against interest rate changes were the most negatively impacted by the standard

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

the economic determinants of the market reaction to proposed mandatory accounting changes in the oil and gas industry a cross sectional analysis abstract this paper examines the economic reasons for the observed negative abnormal common stock performance of firms whose reported earnings and stockholders equity were negatively affected by the proposed elimination of full cost accounting in the oil and gas industry four explanations of the market effects of this mandatory accounting change are examined 1 naive investor theory 2 modified naive investor theory 3 contracting cost theory and 4 estimation risk theory these hypotheses are developed in detail and used to generate variables for a cross sectional model which explains observed return behavior the effect of the accounting change on total stockholder s equity the existence of financial contracts denominated in terms of accounting numbers and to a lesser extent firm size are shown to be important explanatory variables the importance of these variables is consistent with both the contracting cost and estimation risk theories

does it pay to change your company s name a stock market perspective a company s name is commonly considered to be an integral part of its image just like the quality of its products or the quality of its technical services changing a company s name is a major policy decision contemplated by many firms and actually implemented by some each year this paper attempts to examine albeit indirectly whether a name change can improve the profit performance of a firm and what type of firm is more likely to succeed in doing so we use the event study methodology developed in finance to examine the above questions with respect to 58 corporations that changed their names in 1981 1985 our findings are that for most of the firms name changes are associated with improved performance and that the greatest improvement tends to occur in firms that produce industrial goods and whose performance prior to the change was relatively poor evidence that industrial good producers are also heavy users of corporate advertising lends further credence to this finding our findings do not support however the contention that the new name per se will enhance demand for the firm s products rather it seems that the act of a name change serves as a signal that other measures to improve performance such as changes in product offerings and organizational changes will be seriously and successfully undertaken the rationale behind why such a signal is sent and why it is believed is discussed

comparing heterogeneous consumption in u s and japanese meat and fish demand this article uses national quarterly data to conduct an empirical analysis of pre committed meat and fish demand by u s and japanese households using the generalized almost ideal demand system gaids pre committed demand represents the component of demand that is insensitive to both income and price adjustments u s consumers are found to hold significant positive pre committed demand for beef and pork while japanese consumers appear to possess significant positive pre committed demand for beef and fish this provides evidence to partially explain observed differences in japanese and u s consumer reactions to nonprice and nonincome effects in beef pork poultry and fish in addition based on inand out of sample performance the more general gaids is preferred to the almost ideal demand system aids for both the u s and japanese demand systems results lend to improved demand modeling efforts and more complete understanding of true market forces at hand in meat and fish markets for these culturally diverse consumer groups

accounting discretion in fair value estimates an examination of sfas 142 goodwill impairments this study examines statement of financial accounting standards 142 adoption decisions focusing on the trade off between recording certain current goodwill impairment charges below the line and uncertain future impairment charges included in income from continuing operations we examine several potentially important economic incentives that firms face when making this accounting choice we find evidence suggesting that firms equity market concerns affect their preference for above the line vs below the line accounting treatment and firms debt contracting bonus turnover and exchange delisting incentives affect their decisions to accelerate or delay expense recognition our study contributes to the accounting choice literature by examining managers use of discretion when adopting a mandatory accounting change and by developing and testing explicit cross sectional hypotheses of the determinants of firms preferences for immediate below the line versus delayed above the line expense recognition

the sec reversal of fasb statement no 19 an investigation of information effects it has become popular in recent years to assess the economic consequences of new financial reporting standards and disclosure requirements as reflected in stock price behavior while the motivation for such studies seems to be generally accepted there are serious problems both in designing studies to assess the capital market reaction to new accounting rules and in subsequently interpreting the results for policymaking the difficulties are largely due to the lack of tight models of how new financial accounting standards board fasb standards and securities and exchange commission sec releases should impact investor decisions within the context of efficient markets this generally leads the researchers to test for average abnormal stock returns upon the announcement of a new accounting rule across a sample of firms subject to the rule this empirical approach is exposed to two major dangers first the intrusion of confounding events can easily lead to rejection of the null hypothesis of no price response due to both the very general nature of the alternate hypothesis of average abnormal returns and the single event date

market reactions to accounting regulations in the savings and loan industry abstract this paper addresses whether events leading to three regulatory accounting principles issued by the federal home loan bank board affected the market value of savings and loan associations s ls the market reaction to these regulations is predicted to be positive since they effectively eased minimum regulatory net worth requirements a significant market reaction is observed for the regulation that allowed s ls to increase regulatory net worth by permitting appraised equity capital however results are inconsistent with the alternative hypothesis associated with the regulations permitting deferral of loan losses and net worth certificates

the importance of accounting changes in debt contracts the cost of flexibility in covenant calculations abstract in this paper we examine how the exclusion of voluntary and mandatory accounting changes from the calculation of covenant compliance affects the interest rate charged on the loan after controlling for self selection bias and other factors known to affect loan spreads we find that the rate charged is 84 basis points lower when voluntary accounting changes are excluded and 71 basis points lower when mandatory accounting changes are excluded our results suggest that borrowers are willing to pay substantially higher interest rates to retain accounting flexibility that may help them avoid covenant violations and to avoid duplicate record keeping costs

impact on equity prices of pronouncements related to nonpension postretirement benefits abstract this study examines the impact on equity prices of nine pronouncements related to the proposed accounting for nonpension postretirement benefits compared to a control group the experiment firms exhibit significant negative abnormal returns around the issuance of the exposure draft on nonpension postretirement benefits the negative abnormal returns are most pronounced for firms with few retirees relative to current employees firms with high debt ratios small firms and firms currently reporting these benefits on the pay as you go basis these results are consistent with the contracting cost hypotheses

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase

the impact of cash flow volatility on discretionary investment and the costs of debt and equity financing abstract we show that higher cash flow volatility is associated with lower average levels of investment in capital expenditures r d and advertising this association suggests that firms do not use external capital markets to fully cover cash flow shortfalls but rather permanently forgo investment cash flow volatility also is associated with higher costs of accessing external capital moreover these higher costs as measured by some proxies imply a greater sensitivity of investment to cash flow volatility thus cash flow volatility not only increases the likelihood that a firm will need to access capital markets it also increases the costs of doing so

u s technological leadership where did it come from and where did it go abstract during the quarter century following the second world war the united states was the world s most productive economy by virtually all measures and the technological leader across a very broad front this paper is concerned with the sources of u s technological leadership during that era and the reasons for the erosion of that leadership it is proposed that there were two distinguishable components of post war u s technological dominance one was a lead in mass production industries and this was of long standing the other was leadership in high technology industries due to massive american investments in science and technology eduction and research and development and this was new the u s advantage in mass production industries eroded when after bretton woods the world became a common market the u s preeminence in high technology industries diminished as other countries matched u s investments in science and technology it is argued that since the late 1960s the major industrial nations are bound together technologically as never before