historical note on height and parental consumption decisions abstract with fertility a measure of the relative price between the quality versus quantity of children trade off parental consumption decisions allocating nutritional resources between generations are important in the income height relationship this paper uses data from nine european nations to explore this hypothesis

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

economies of scope and the cash crop food crop debate in senegal abstract the government of senegal plans to achieve national food self sufficiency by inducing farmers to switch away from cash crops toward food crop production this paper examines selected economic consequences of the planned substitution using empirical data recently collected in southeastern senegal cost function estimates suggest that farmers are currently producing too much food crop and too little cash crop output given existing technology and observed relative prices moreover economies of scope in producing both food crops and cash crops on the same farm result in a 22 cost saving relative to growing both types of crops on separate specialized farms

detecting earnings management a new approach this paper provides a new approach to test for accrual based earnings management our approach exploits the inherent property of accrual accounting that any accrual based earnings management in one period must reverse in another period if the researcher has priors concerning the timing of the reversal incorporating these priors can significantly improve the power and specification of tests for earnings management our results indicate that tests incorporating reversals increase test power by around 40 and provide a robust solution for mitigating model misspecification arising from correlated omitted variables

the changing landscape of accrual accounting a fundamental property of accrual accounting is to smooth temporary timing fluctuations in operating cash flows indicating an inherent negative correlation between accruals and cash flows we show that the overall correlation between accruals and cash flows has dramatically declined in magnitude over the past half century and has largely disappeared in more recent years the adjusted r 2 from regressing changes in accruals on changes in cash flows drops from about 70 90 in the 1960s to near zero under 20 in more recent years in exploring potential reasons for the observed attenuation we find that increases in non timing related accrual recognition as proxied by one time and nonoperating items and the frequency of loss firm years explain the majority of the overall decline on the other hand temporal changes in the matching between revenues and expenses and the growth of intangible intensive industries play only a limited role in explaining the observed attenuation finally the relative decline of the timing role of accruals does not appear to be associated with an increase in the asymmetrically timely loss recognition role

longitudinal studies of human growth and health a review of recent historical research longitudinal studies of health this paper reviews recent literature using stature and weight as measures of human welfare with a particular interest in cliometric or historical research we begin with an overview of anthropometric evidence of living standards and the new but fast growing field of anthropometric history this literature is always implicitly and often explicitly longitudinal in nature we then discuss i systematic empirical research into the relationship between conditions in early life and later life health and mortality and ii historical evidence on the relationship between body mass morbidity and mortality we conclude with a discussion of the importance of historical sources and understandings to health economics and population health

stature and the standard of living research on the standard of living now emphasizes alternatives or supplements to the national income accounts this paper reviews the results of two decades of research using stature as a measure of health aspects of human welfare after comparing and contrasting stature with per capita income i consider height patterns discovered by economic historians that challenge traditional beliefs about the past including long term trends cycles in heights and the dreadfully small stature of slave children that was followed by catch up growth the paper concludes with comparisons to work in development economics and suggestions for research

an analysis of glass ceiling perceptions in the accounting profession access to a deep pool of talent is essential to the success of every professional services firm the supply of that talent is contingent upon the available rewards for the exercise of that talent and both the existence of the potential rewards and the beliefs that individuals hold about the existence of the rewards affect the decision to remain in the field one structural factor that may affect the judgment about whether to remain in a profession concerns promotions based on the gender of the employee i e the glass ceiling in this study we examine the glass ceiling within the context of the accounting profession while advances have been made within the accounting profession to address the glass ceiling the continued existence and perceptions about the continued existence of the issue exert adverse effects upon the available talent pool and may create long term problems for the profession in this study we investigate glass ceiling perceptions among a large sample of female accounting professionals employed in accounting the sample includes both public accountants and those employed in industry accounting our study yields the finding of beliefs in bias driven effects e g a bias against female promotions to the top level structural effects e g a lack of mentoring opportunities networking opportunities and high profile job assignments and cultural effects e g a lack of social support from the male leaders within the organization among these accounting professionals glass ceiling perceptions are also influenced by several demographic factors furthermore accounting professionals employed by industry are more likely to report a glass ceiling within their firms than accounting professionals employed by public accounting firms the findings are of interest to researchers who explore gender related issues in professional service firms such as the field of accounting and to senior members of practice who are tasked with ensuring the integrity and quality of the talent pool and the equitable distribution of rewards to employees

earnings quality in uk private firms comparative loss recognition timeliness abstract uk private and public companies face substantially equivalent regulation on auditing accounting standards and taxes we hypothesize that private company financial reporting nevertheless is of lower quality due to different market demand regulation notwithstanding a large uk sample supports this hypothesis quality is operationalized using basu s 1997 time series measure of timely loss recognition and a new accruals based method the result is not affected by controls for size leverage industry membership and auditor size or by allowing endogenous listing choice the result enhances understanding of private companies which are predominant in the economy it also provides insight into the economics of accounting standards

the effects of hedge fund interventions on strategic firm behavior we examine the impact of hedge fund interventions on target firms strategic behavior specifically their voluntary disclosure and earnings management strategies we find a decrease in both the likelihood and the frequency of management earnings forecasts conveying bad news and an increase in the level of real earnings management following interventions by hedge fund activists additional evidence suggests that managers substitute between voluntary disclosure and earnings management strategies in resisting hedge fund attacks we also find that withholding of bad news is more pronounced when hedge fund activists pose greater threats to the target firm s management and when the intervention lasts for a relatively short time period our results are consistent with firms behaving strategically in response to heightened career reputation concerns and endangered corporate control arising from hedge fund activism the online appendix is available at https doi org 10 1287 mnsc 2017 2816 this paper was accepted

agency problems auditing and the theory of the firm some evidence agency problems auditing and the theory of the firm some evidenceauthor s ross l watts and jerold l zimmermansource journal of law and economics vol 26 no 3 oct 1983 pp 613 633published by the university of chicago pressstable url http www jstor org stable 725039accessed 29 06 2008 23 14

implications of power when the ceo can pressure the cfo to bias reports abstract building on archival anecdotal and survey evidence on managers roles in accounting manipulations i develop an agency model to examine the effects of a ceo s power to pressure a cfo to bias a performance measure like earnings this power has implications for incentive compensation reporting quality firm value and information rents predictions from the model provide potential explanations for the differing results from recent empirical studies on the impact of regulatory interventions like sox and the extent to which the ceo s or cfo s incentives significantly impact on earnings management the model also identifies conditions under which either a powerful or a non powerful ceo can extract rents which can help explain mixed empirical results on the association between ceo power and excessive compensation

decomposing world health inequality this study explores global inequality in health status and decomposes it into within and between country inequality we rely on standardized height as our health indicator since it avoids the measurement pitfalls of more traditional measures of health such as morbidity mortality and life expectancy it also avoids measurement problems associated with using monetary variables such as income or expenditure across time or place to compare welfare our calculation of world height inequality indicates that in contrast with similar research on income inequality within country variation is the source of most inequality rather than the differences between countries

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

resource shocks and human capital stocks brain drain or brain gain abstract based on the paradox of plenty resource abundant countries tend to be vulnerable for lower economic prosperity along with instable political institutions as well as corruption this paper sheds light on the relationship between resource abundance and the selectivity of migration first i combine a dutch disease model with a roy borjas model in order to elaborate on the relationship between resource shocks and migrant selectivity theoretically thereby i predict that resource booms give rise to brain drain effects which are mediated through distributional effects under certain conditions second i provide empirical evidence for the effect of resource shocks on migrant selectivity based on a structural equation model in order to disentangle effects on income inequality and migrant selectivity the results show that resource shocks especially oil booms strengthen brain drain effects in a sample with 116 source and 23 destination countries between 1910 and 2009

the goals and promise of the sarbanes oxley act the primary goal of the sarbanes oxley act was to fix auditing of u s public companies consistent with its full official name the public company accounting reform and investor protection act of 2002 by consensus auditing had been working poorly and increasingly so the most important and most promising part of sarbanes oxley was the creation of a unique quasi public institution to oversee and regulate auditing the public company accounting oversight board pcaob in controversial section 404 the law also created new disclosure based incentives for firms to spend money on internal controls above increases that would have occurred after the corporate scandals of the early 2000s in exchange for these higher costs which have already fallen substantially sarbanes oxley promises a variety of long term benefits investors will face a lower risk of losses from fraud and theft and benefit from more reliable financial reporting greater transparency and accountability public companies will pay a lower cost of capital and the economy will benefit because of a better allocation of resources and faster growth sarbanes oxley remains a work in progress section 404 in particular was implemented too aggressively but reformers should push for continued improvements in its implementation by pcaob rather than for repeal of the legislation itself

chief executive officer equity incentives and accounting irregularities this study examines whether chief executive officer ceo equity based holdings and compensation provide incentives to manipulate accounting reports while several prior studies have examined this important question the empirical evidence is mixed and the existence of a link between ceo equity incentives and accounting irregularities remains an open question because inferences from prior studies may be confounded by assumptions inherent in research design choices we use propensity score matching and assess hidden omitted variable bias within a broader sample in contrast to most prior research we do not find evidence of a positive association between ceo equity incentives and accounting irregularities after matching ceos on the observable characteristics of their contracting environments instead we find some evidence that accounting irregularities occur less frequently at firms where ceos have relatively higher levels of equity incentives

two sided learning and the ratchet principle i study a class of continuous time games of learning and imperfect monitoring a long run player and a market share a common prior about the initial value of a gaussian hidden state and learn about its subsequent values by observing a noisy public signal the long run player can nevertheless control the evolution of this signal and thus affect the market s belief the public signal has an additive structure and noise is brownian i derive conditions for an ordinary differential equation to characterize equilibrium behavior in which the long run player s actions depend on the history of the game only through the market s correct belief using these conditions i demonstrate the existence of pure strategy equilibria in markov strategies for settings in which the long run player s flow utility is nonlinear the central finding is a learning driven ratchet principle affecting incentives i illustrate the economic implications of this principle in applications to monetary policy earnings management and career concerns

welfare and economic growth in kenya 1914 76 abstract in this paper we present estimates of per capita income income distribution and poverty in kenya for the period between 1914 and 1976 the estimates indicate that per capita incomes mostly increased up to 1974 inequality increased most of the time until 1950 then fell and increased again until 1971 and then finally fell poverty declined until 1964 but has since then increased slightly a decomposition analysis shows that modern sector enrichment contributed more to growth than modern sector enlargement and that traditional sector enrichment was of greater importance to the poor than modern sector enlargement

on the optimal relation between the properties of managerial and financial reporting systems we develop a theoretical model of the firm that links properties stewardship vs valuation focus of financial reporting regimes with the informational properties of optimal managerial accounting systems we show that contrary to the standard textbook proposition properties of management and financial accounting systems are not independent significantly we provide an explicit connection between exogenous and observable properties of a firm s financial reporting system and the quality of the managerial accounting system on which manager s base real economic decisions as the quality of those economic decisions can also be inferred from publicly available data our theory generates new opportunities for empirical managerial accounting research on large nonproprietary samples further by being able to identify enhanced performance due to improved managerial accounting information our theory provides opportunities to gain a better understanding of the link between particular managerial accounting practices and the quality of the information produced

accounting activities security prices and class action lawsuits abstract provisions in the securities acts provide incentives to purchasers of common stocks to initiate class action lawsuits when stock prices decline at and preceding announcements that directly reduce or imply a reduction in previously reported accounting book values reported common stock returns associated with alleged misrepresentations in financial statements are consistent with incentives provided by the law classification of misrepresentations based on hypothesized relations between announcements and security returns results in observed differences in the association between litigated accounting announcements and common stock returns

religion and the method of earnings management evidence from china previous studies argue that religious firms are more ethical and thus engage less in accrual earnings management at odds with the ethical view we use a sample of chinese listed firms and show that firms in religious regions use more real earnings management we postulate that besides ethics religion also proxies for risk aversion which motivates firms to substitute accrual earnings management with real earnings management consistent with this view we show that the positive negative association between religiosity and real accrual earnings management is more pronounced for firms with lower litigation risk and for firms with less reputable auditors in addition we use a mediation model introduced by baron and kenny j pers soc psychol 51 6 1173 1182 1986 to show that religiosity affects earnings management through the channel of risk aversion we conclude that firms choose real earnings management over accrual based earnings management because of risk aversion rather than ethical reasons

weather shocks and agricultural commercialization in colonial tropical africa did cash crops alleviate social distress a rapidly growing body of research examines the ways in which climatic variability influences economic and societal outcomes this study investigates how weather shocks triggered social distress in british colonial africa further it intervenes in a long standing and unsettled debate concerning the effects of agricultural commercialization on the abilities of rural communities to cope with exogenous shocks we collect qualitative evidence from annual administrative records to explore the mechanisms linking weather extremes to harvest failures and social distress we also conduct econometric testing on a novel panel dataset of 143 administrative districts across west south central and east africa in the interwar era 1920 39 our findings are twofold first we find robust evidence that rainfall anomalies both drought and excessive precipitation are associated with spikes in imprisonment our proxy for social distress we argue that the key causal pathway is the loss of agricultural income which results in higher imprisonment for theft unrest debt and tax default second we find that the impact of weather shocks on distress is partially mitigated by the cultivation of export crops our findings suggest that even in the british colonial context smallholder export crop cultivation led to higher private incomes as well as greater public investment our findings speak to a topic of considerable urgency today as the process of global climate change accelerates generating more severe and unpredictable climatic extremes an increased understanding and identification of adaptive and mitigating factors would assist in targeting policy interventions and designing adaptive institutions to support vulnerable rural societies

earnings volatility and earnings predictability abstract survey evidence indicates widely held managerial beliefs that earnings volatility is negatively related to earnings predictability in addition existing research suggests that earnings volatility is determined by economic and accounting factors and both of these factors reduce earnings predictability we find that the consideration of earnings volatility brings substantial improvements in the prediction of both short and long term earnings conditioning on volatility information also allows one to identify systematic errors in analyst forecasts which implies that analysts do not fully understand the implications of earnings volatility for earnings predictability

do investors see through mistakes in reported earnings this study investigates whether investors see through materially misstated earnings and whether they anticipate earnings restatements for firms that restate at least one annual report we find that investors are misled by mistakes in reported earnings at the time of initial earnings announcements investors react positively to the component of the favorable earnings surprise that will subsequently be restated and they attach the same valuation to it as to the true earnings surprise we also find that investors anticipate the subsequent downward restatements and start marking stock prices down several months before a restatement announcement so that the full impact of a restatement is about three times as large as the restatement announcement effect indeed we show that investors punish restating firms because the stock price gains that shareholders enjoy when firms initially announce overstated earnings are more than reversed by the time of the restatement announcement

value destruction and financial reporting decisions the comprehensive survey reported here allowed analysis of how senior u s financial executives make decisions related to performance measurement and voluntary disclosure chief financial officers were asked what earnings benchmarks they cared about and which factors motivated executives to exercise discretion even sacrifice economic value to deliver earnings these issues are crucially linked to stock market performance the results show that the destruction of shareholder value through legal means is pervasive perhaps even a routine way of doing business indeed the amount of value destroyed by companies striving to hit earnings targets exceeds the value lost in recent high profile fraud cases

capital market consequences of asymmetric output price rigidities abstract firms adjust output prices to cost decreases with a delay relative to cost increases i document firms operating income becomes less persistent when their input costs decrease than when their costs increase the stocks of firms slowly cutting output prices due to asymmetric output price rigidities also experience high stock return volatility and their ceos more frequently manage expectations of financial analysts i show these results are consistent with a new keynesian model with trend inflation

market and political regulatory perspectives on the recent accounting scandals not surprisingly the recent accounting scandals look different when viewed from the perspectives of the political regulatory process and of the market for corporate governance and financial reporting we do not have the opportunity to observe a world in which either market or political regulatory processes operate independently and the events are recent and not well researched so untangling their separate effects is somewhat conjectural this paper offers conjectures on issues such as what caused the scandalous behavior why was there such a rash of accounting scandals at one time who killed arthur andersen the securities and exchange commission or the market did fraudulent accounting kill enron or just keep it alive for too long what is the social cost of financial reporting fraud does the united states in fact operate a principles based or a rules based accounting system was there market failure or was there regulatory failure or both was the sarbanes oxley act a political and regulatory overreaction does the united states follow an ineffective regulatory model

some microeconometric evidence concerning the effect of the canada pension plan on personal saving growing criticism of canada s retirement income system during the past few years has resulted in renewed pressure on both federal and provincial governments to expand public pension programmes especially the canada pension plan cpp once again this prospect has aroused fears that an unfunded expansion of the public pension system could have a seriously adverse effect on personal saving the adverse effect on personal saving it is argued could in turn lower investment and thereby reduce even further what is already by postwar standards an extremely sluggish rate of productivity growth for the canadian economy however the basis for fearing that public pensions may reduce household saving is somewhat questionable since the wealth replacement effect of public pensions on saving may be offset by an induced retirement effect and perhaps by inter generational transfers in the form of bequests the theory at least is inconclusive in this regard 1 surprisingly enough unlike in the united states where the theoretical indeterminacy concerning the overall impact of public pensions on saving has spawned a multitude of empirical studies the subject has been largely ignored by econometricians in canada but sparse though the empirical evidence may be it does not support the seemingly popular contention that public pensions reduce personal saving in the only published empirical study to date boyle and murray 1979 conclude from their analysis of time series data that canada s public pension plans have had no visible effect on household savings behaviour this paper presents some cross sectional evidence on the response of personal saving to public pensions which appears to conflict with the boyle and murray findings it is organized as follows section i describes the methodology and the data base used the empirical results are analysed in section ii some conclusions follow in section iii

inequality of opportunity in sub saharan africa in the last decades inequality of opportunity has been extensively studied by economists on the assumption that in addition to being normatively undesirable it can be related to low potential for growth this paper evaluates inequality of opportunity and the different sources of unequal opportunities in 11 sub saharan africa countries the results indicate that the portion of total inequality that can be attributed to exogenous circumstances that is circumstances outside the control of individuals control is between 30 percent and 40 percent in the countries considered the results also indicate a positive association between total consumption inequality and inequality of opportunity finally this paper addresses a number of methodological issues that typically arise when measuring inequality of opportunity with imperfect data which is the typical case in developing countries

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

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

the role of registered retirement savings plans in a life cycle model in this paper a distinction is made between two types of personal saving one of which is tax deductible and another which is not and the role of each is examined within the framework of a life cycle model more precisely the model shows how tax deductible rrsp saving enables the individual to do his own lifetime income averaging for tax purposes in order to generate the lifetime profile of taxable income which minimizes the discounted value of tax payments the use of rrsps for this purpose however does not usually result in income averaging in the conventional sense since it is not necessarily optimal for a person to equalize taxable income over each period of his lifetime by contrast non tax deductible saving permits the individual to choose his optimal lifetime consumption path and bequests le ro le des regimes enregistres d epargne retraite dans un modele d optimisation sur tout le cycle de vie dans ce m6moire l auteur distingue deux types d 6pargne personnelle l une d6ductible aux fins de l impot sur le revenu et l autre non le role de chacune est analyse dans le contexte d un modele d optimisation sur tout le cycle de vie plus pr6cis6ment le modele montre comment l 6pargne via les r6gimes enregistr6s d 6pargne retraite permet a l individu d 6taler son revenu total dans le temps aux fins d imp6t afin de construire un profil de revenu imposable qui minimise la valeur pr6sente des impots pay6s l utilisation des r6gimes enregistr6s d 6pargne retraite h cette fin n engendre pas necessairement un 6talement conventionnel du revenu puisqu il se peut fort bien qu il ne soit pas optimal pour l individu d 6galiser son revenu imposable pour chaque p6riode de sa vie d autre part l 6pargne qui n est pas d6ductible aux fins d impot sur le revenu permet h l individu de choisir le sentier optimal de consommation et de legs sur tout le cycle de vie

economic development and the escape from high mortality summary this paper studies the characteristic features of the escape from high mortality as recorded from the historical experience of northwestern europe and from the current experience of less developed countries the paper documents stylized facts of mortality change and measures the contribution of economic development represented by income per capita to the mortality decline during the second half of the 20th century the paper argues that improvements in economic conditions since the 18th century are an important factor behind the decline in death rates in developed countries and in the subsequent reduction of death rates in less developed countries we show that economic development lowers mortality through differential effects in infectious disease mortality and that quantitatively income growth is able to account for between one third and one half of the recent mortality decline

auditor reputation the impact of critical reports issued by government inspectors in recent years u k department of trade investigations into the affairs of a specific company have sometimes been critical of the work done by its auditors and reporting accountants this article assesses the impact of this criticism on the auditor s reputation in particular it examines the stock price performance of the auditor s listed clients the results show a small wealth loss for the audit clients the article also examines the impact of the department of trade criticism on an audit firm s number of listed clients and its future audit fees compared to a control group the criticized auditors appear to suffer a small loss in market share based on number of listed clients and on audit fees the evidence suggests that criticized auditors incurred economic losses from the damage to their reputations this is consistent with models of reputation advanced in the industrial organization literature

the economics of short term performance obsession in theory discounted cash flows dcfs set prices in well functioning capital markets in practice investment managers attach substantial weight in stock selection to short term performance particularly earnings and tracking error corporate executives blame this behavior for their own obsession with short term earnings are stock prices likely to allocate financial resources efficiently when short term earnings dominate investment decisions can investment managers who identify stocks as mispriced on a dcf basis earn excess returns this article explains why maximizing long term cash flow is the most effective way to create value for shareholders and charts a course for alleviating the obsession with short term performance

why do accruals predict earnings abstract higher accruals are associated with lower subsequent earnings we show this phenomenon can be explained by the way sales profits and working capital respond to changes in a firm s product markets empirically high accruals predict high subsequent sales growth but a long lasting drop in both profits and profitability accruals also predict an increase in future competition suggesting that accruals are correlated with abnormally high and in equilibrium transitory true profitability that attracts new entrants to the industry overall the predictive power of accruals is better explained by product market effects than by measurement error in accruals or diminishing returns from investment

does managerial sentiment affect accrual estimates evidence from the banking industry abstract we examine whether managerial sentiment is associated with errors in accrual estimates using public banks we find 1 managerial sentiment is negatively associated with loan loss provision estimates 2 future charge offs per dollar of provision are positively associated with sentiment when the provision is estimated and 3 the effects of sentiment are greater for firms with more uncertain charge offs results are similar for private banks suggesting accrual manipulation related to capital market incentives is unlikely to explain the results although economic fundamentals explain most of the variation in the provision we find sentiment has an incremental and economically meaningful effect

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

recognizing ethical issues an examination of practicing industry accountants and accounting students it has long been recognized that accountants practicing in business settings have a dual role 1 as employees they are bound to the organization and 2 as professionals they are bound by the profession s code of ethical conduct westra journal of business ethics 5 2 119 128 1986 these two roles highlight the need to recognize and consider both the ethical and economic implications of their decisions practicing industry accountants are commonly involved in a broad range of their firm s business practices and decision making and are increasingly exposed to the commercial aspects of their companies also during their education they were trained on their professional responsibilities however in general this education was not recent and may not have been reinforced by contrast accounting students have been recently and repeatedly exposed to and have knowledge about their professional responsibilities as an accountant but limited if any exposure to the commercial aspects of business consequently our first hypothesis predicts that the ethical sensitivity of practicing industry accountants will be lower than that of accounting students we find limited support for this hypothesis second we also examine company reward structure and predict that ethical sensitivity will be lower for those in a company with a reward structure narrowly focused only on financial goals as compared to those in a company with a broad reward structure e g including rewards for both financial and non financial goals third we predict that the difference in ethical sensitivity levels between those in a company with a narrow reward structure as compared to those in a company with a broad financial reward structure will be higher for practicing industry accountants compared to accounting students results from our study generally support these last two predictions ethical sensitivity is lower for those in a company with a reward structure narrowly focused only on financial goals as compared to those in a company with a broad reward structure suggesting that companies may be able to increase ethical awareness in their organizations by including non financial goals in their reward structures

promise and pitfalls in the use of secondary data sets income inequality in oecd countries as a case study this paper examines the role of secondary data sets in empirical economic research taking the field of income distribution as a case study we illustrate problems faced by users of secondary statistics showing how both cross country comparisons and time series analysis can depend sensitively on the choice of data after describing the genealogy of secondary data sets on income inequality we consider the main methodological issues and discuss their implications for comparisons of income inequality across oecd countries and over time the lessons to be drawn for the construction and use of secondary data sets are summarized at the end of the paper

wealth risk and activity choice cattle in western tanzania abstract imperfect credit markets force households to use their savings for investment profitable activities often require lumpy investments limiting entry by poorer households resulting in increasing welfare differences in tanzania cattle are a profitable but lumpy investment and a liquid asset for consumption smoothing richer households own substantial cattle herds while poorer households specialize in low return low risk activities a dynamic programming model and simulations are presented to analyze entry into asset accumulation under income risk the evidence suggests that households with lower endowments are less likely to own cattle and returns to their endowments are lower

the economics of fraudulent accounting we argue that earnings management and fraudulent accounting have important economic consequences in a model where the costs of earnings management are endogenous we show that in equilibrium low productivity firms hire and invest too much in order to pool with high productivity firms this behavior distorts the allocation of economic resources in the economy we test the predictions of the model using firmlevel data we show that during periods of suspicious accounting firms hire and invest excessively while managers exercise options when the misreporting is detected firms shed labor and capital and productivity improves our firm level results hold both before and after the market crash of 2000 in the aggregate our model provides a novel explanation for periods of jobless and investment less growth

executive overconfidence and the slippery slope to financial misreporting abstract a detailed analysis of 49 firms subject to aaers suggests that approximately one quarter of the misstatements meet the legal standards of intent in the remaining three quarters the initial misstatement reflects an optimistic bias that is not necessarily intentional because of the bias however in subsequent periods these firms are more likely to be in a position in which they are compelled to intentionally misstate earnings overconfident executives are more likely to exhibit an optimistic bias and thus are more likely to start down a slippery slope of growing intentional misstatements evidence from a high tech sample and a larger and more general sample support the overconfidence explanation for this path to misstatements and aaers

earnings quality evidence from the field abstract we provide insights into earnings quality from a survey of 169 cfos of public companies and in depth interviews of 12 cfos and two standard setters cfos believe that i above all high quality earnings are sustainable and repeatable specific characteristics include consistent reporting choices backing by actual cash flows and absence of one time items and long term estimates ii about 50 of earnings quality is driven by non discretionary factors such as industry and macro economic conditions iii in any given period about 20 of firms manage earnings to misrepresent economic performance and for such firms 10 of eps is typically managed iv earnings manipulation is hard to unravel from the outside but peer comparisons and lack of correspondence between earnings and cash flows provide helpful red flags in addition cfos disagree with current standard setting on a number of issues including the sheer number of promulgated rules the top down approach to rule making the neglect of the matching principle and the emphasis on fair value accounting they indicate that a rules based culture makes the audit function centralized and mechanical and hinders the development of audit professionals a summary impression from our work is that cfos view earnings quality as more of a single and unconditional characteristic in contrast to current research where measures of earnings quality are strongly conditional on the decision setting this cfo view is related to their idea of one number a single earnings metric that shapes both their interactions with external stakeholders and internal decision making

longitudinal studies of human growth and health a review of recent historical research this paper reviews recent literature using stature and weight as measures of human welfare with a particular interest in cliometric or historical research we begin with an overview of anthropometric evidence of living standards and the new but fast growing field of anthropometric history this literature is always implicitly and often explicitly longitudinal in nature we then discuss i systematic empirical research into the relationship between conditions in early life and later life health and mortality and ii historical evidence on the relationship between body mass morbidity and mortality we conclude with a discussion of the importance of historical sources and understandings to health economics and population health

behind the scenes the corporate governance preferences of institutional investors we survey institutional investors to better understand their role in the corporate governance of firms consistent with a number of theories we document widespread behind the scenes intervention as well as governance motivated exit these governance mechanisms are viewed as complementary devices with intervention typically occurring prior to a potential exit we further find that long term investors and investors that are less concerned about stock liquidity intervene more intensively finally we find that most investors use proxy advisors and believe that the information provided by such advisors improves their own voting decisions

the impact of performance based compensation on misreporting abstract this paper examines the effect of ceo compensation contracts on misreporting we find that the sensitivity of the ceo s option portfolio to stock price is significantly positively related to the propensity to misreport we do not find that the sensitivity of other components of ceo compensation i e equity restricted stock long term incentive payouts and salary plus bonus have any significant impact on the propensity to misreport relative to other components of compensation stock options are associated with stronger incentives to misreport because convexity in ceo wealth introduced by stock options limits the downside risk on detection of the misreporting

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

does natural resource abundance increase latin american income inequality abstract why is income inequality higher in latin america than in east asia is this phenomenon related to the region s natural resource abundance is it a contributor to latin america s slow and narrowly focused human capital accumulation if so can anything be done to reverse the latin american trends or should we think of the region s fate as unalterable to help answer these questions this paper draws upon standard trade theory and cross sectional empirical analysis to demonstrate that natural resource intensive sectors particularly permanent agriculture absorb capital that might otherwise flow to manufacturing this depresses workers incentive to accumulate skill and delays industrialization

competition for talent under performance manipulation abstract we study the effects of introducing competition for ceos assuming that the talent of ceos is not observable and that they can misreport their performance without competition for talent firms maximize their profits by offering inefficiently low powered incentive contracts competition for talent removes those inefficiencies but it leads to excessively high powered incentive contracts causing efficiency losses that can be more severe than the inefficiencies that competition mitigates if misreporting is not a concern however then competition for talent has unambiguously positive effects on efficiency

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

decision making approaches and the propensity to default evidence and implications abstract this paper examines heterogeneity in the responsiveness to default options in a large state retirement plan focusing on individuals decision making approaches as well as their economic and demographic characteristics analyses of a survey of plan participants show that procrastination and the need for cognitive closure are important determinants of the likelihood of default this paper also explores an important implication of defaulting individuals who default are significantly more likely to subsequently express a desire to enroll in a different plan the desire to change plans is also correlated with numerous economic and decision making characteristics including procrastination

a contracting perspective on earnings quality abstract this paper analyzes the impact of signal to noise ratios and the autocorrelation of a performance measure on the principal s welfare in dynamic agencies with renegotiation we consider the impact of changes in the persistent transitory and reversible components of accounting earnings on its usefulness in valuation versus contracting increasing the persistent components and reducing the reversible components are generally desirable for valuation but not for contracting eliminating transitory components of earnings is generally desirable for valuation but not necessarily for contracting we discuss the contracting implications of differences in the autocorrelations of accounting earnings versus stock returns

does auditor reputation matter the case of kpmg germany and comroad ag we study the stock and audit market effects associated with a widely publicized accounting scandal involving a public company comroad ag and a large reputable audit firm kpmg in a country germany that has long provided auditors with substantial protection from shareholder legal liability we use this event to study whether an auditor s reputation helps to ensure audit quality a rationale for which recent literature and events provide scant support given the absence of a strong insurance rationale for audit quality germany permits a relatively clean test of whether auditor reputation matters we find that kpmg s clients sustain negative abnormal returns of 3 at events pertaining to comroad and that these returns are more negative for companies that are likely to have higher demands for audit quality we also find an increase in the number of clients that drop kpmg in the year of the comroad scandal mostly smaller recently public companies that are similar to comroad overall our results provide support for the reputation rationale for audit quality

real effects of accounting rules evidence from multinational firms investment location and profit repatriation decisions we analyze survey responses from nearly 600 tax executives to better understand corporate decisions about real investment location and profit repatriation our evidence indicates that avoiding financial accounting income tax expense is as important as avoiding cash income taxes when corporations decide where to locate operations and whether to repatriate foreign earnings this result is important in light of the recent research about whether financial accounting affects investment and in light of the decades of research on foreign investment that examines the role of cash income taxes but heretofore has not investigated the importance of financial reporting effects our analysis suggests that financial reporting is an important factor to be considered in the policy debates focused on bringing investment to the united states

the kuznets process and the inequality development relationship abstract in his classic paper on economic growth and income inequality kuznets discussed the process of population shift from traditional to modern activities as the basis for a theory of distributional change during the course of development in this paper we present a formalization of the kuznets process conduct a general analysis of distributional change under this process and derive the functional forms of and conditions for a turning point in the inequality development relationship for six commonly used indices of inequality the functional form appropriate to each index is then estimated using cross section data on 60 developing and developed countries finally some extensions to the initial formalization of the kuznets process are considered

chronic bias in earnings forecasts whatever the source or explanation of bias in forecasts of company earnings if such bias persists it is potentially discoverable and exploitable by investors this research addresses 1 whether characterizing forecasts as if they were a homogeneous group with respect to bias is accurate or useful and 2 whether a long term record of forecast errors contains information useful in predicting subsequent errors we found that earnings forecasts are heterogeneous with respect to direction and degree of bias we also found evidence of extremes in optimism and pessimism and that extreme errors tend to persist in the same direction which suggests certain potentially profitable trading strategies

the kuznets curve a reassessment abstract this paper revisits the kuznets hypothesis an extensive data set containing the most recent estimates of income distribution is utilized to test the kuznets hypothesis in addition the data comparability problem with respect to income distribution data when conducting econometric analysis is addressed the results indicate that the data comparability problem is not severe enough to nullify the estimates obtained from pooled regressions the kuznets hypothesis holds for this data set

real earnings management in sales abstract we surveyed 1 638 sales executives across 40 countries regarding their companies likelihood of asking sales to perform real earnings management rem actions when earnings pressure exists using this information which we refer to as companies rem propensities we study how company characteristics and environmental conditions relate to the responses received the use of cash flow incentives for sales personnel and the distribution of interfunctional power in favor of finance rather than sales are both associated with companies rem propensities in addition we show that sales executives preemptively change their behaviors in anticipation of top management s rem requests sales executives working for public companies and companies in the united states reported higher levels of rem propensity the data also support an association between rem propensity and finance sales conflict these findings and others are compared and contrasted with existing empirical and survey based research on rem throughout the paper abstract from author

on the persistence and pricing of industry wide and firm specific earnings cash flows and accruals economic theory suggests that the industry wide component of firm performance is more persistent than the firm specific component this paper tests whether investors fail to fully appreciate the relatively higher lower persistence of industry wide firm specific earnings consistent with predictions we find that the industry wide component of earnings is a significant predictor of future stock returns we show that this form of mispricing is distinct from the accrual anomaly sloan 1996 a hedge portfolio trading strategy that exploits signals from both industry fundamentals and accounting accruals generates abnormal returns in excess of either strategy alone additional evidence suggests that the market underreacts overreacts to industry wide cash flows firm specific accruals but correctly prices both industry wide accruals and firm specific cash flows

the role of accounting quality in the m a market we examine the role of target firms accounting quality in the merger and acquisition process we predict that target firm accounting quality will be positively associated with 1 the likelihood that the deal will be structured as a negotiation rather than as an auction 2 the speed with which the deal reaches final resolution and 3 the likelihood that the proposed deal is ultimately completed our empirical evidence is consistent with these predictions these results complement and extend existing findings on target firm accounting quality and provide new evidence that financial accounting quality relates positively to the efficient allocation of the economy s capital resources this paper was accepted by mary barth accounting

is there a link between executive equity incentives and accounting fraud we compare executive equity incentives of firms accused of accounting fraud by the securities and exchange commission sec during the period 1996 2003 with two samples of firms not accused of fraud we measure equity incentives in a variety of ways and employ a battery of empirical tests we find no consistent evidence that executive equity incentives are associated with fraud these results stand in contrast to assertions by policy makers that incentives from stock based compensation and the resulting equity holdings increase the likelihood of accounting fraud

the effect of health improvements due to tobacco control on earnings in the united states there is minimal evidence causally estimating the relationship between tobacco tax policy population health and earnings this article uses state tobacco taxes as an instrument for life expectancy to estimate the effect on earnings per capita in a panel of almost 3000 counties in the united states over the period 1970 to 2000 in the first stage of the model we find that a one dollar increase in state tobacco taxes significantly increases life expectancy between 1 9 and 2 1 despite showing that tobacco tax is correlated with higher life expectancy and that theoretically improvements in health from reductions in smoking should lead to increased earnings we find an insignificant impact of the induced gains in life expectancy from tobacco policy on county level earnings per capita over the period 1970 to 2000 the lack of significance is explained through local average treatment effects and the smaller economic impact of certain policies that impact health later in life these results provide further

how should we think about earnings quality a discussion of earnings quality evidence from the field abstract dichev graham harvey and rajgopal dghr in this issue survey chief financial officers cfos to elicit their views on earnings quality broader trends in financial reporting and the prevalence of earnings management they provide some interesting insights on these issues we discuss how cfos incentives in the financial reporting process are likely to affect what we can learn from them about earnings quality we also discuss how dghr s methodological choices regarding survey sample and question design affect their inferences including what we can infer about the prevalence and magnitude of earnings management

inequality in sub saharan africa new data and new insights from anthropometric estimates reliable information on inequality within countries is highly scarce especially for less developed countries ldcs using anthropometric measures we extend the inequality database for sub saharan africa to no less than 28 countries over six five year periods from 1950 to 1980 and to some 200 regions within those countries in this process we also test in depth the validity of objections against the derivation of inequality measures from height data in a second step we test the determinants of inequality within and between the 200 regions under study our set of explanatory variables includes protein supply cash cropping industrial structure mineral resources distance to the countries capital urbanization education population density and ethnic fractionalization we find that monoculture cash cropping increases inequality whereas diversified cash cropping has the opposite effect

height health and inequality the distribution of adult heights in india this paper explores the relationship between adult heights and the distribution of income across populations of individuals there is a long literature that examines the relationship between mean adult heights and living standards if adult height is set by the balance between food intake and charges to disease in early childhood it is informative about economic and epidemiological conditions in childhood because taller populations are better off more productive and live longer the relationship between childhood conditions and adult height has become an important focus in the study of the relationship between health and wealth here i follow one of the tributaries of this main stream a relationship between income and height at the individual level has implications for the effects of income inequality on the distribution of heights these relationships parallel but are somewhat more concrete than the various relationships between income inequality and health that have been debated in the economic and epidemiological literatures richard g wilkinson 1996 angus deaton 2003 if height is an increasing but concave function of income average height will be negatively related to income inequality richard steckel 1995 income inequality will also have implications for the dispersion of height so that inequality in height might serve as an indicator of inequality of income in the absence of data on the latter just as mean height might serve as an indicator of mean income aravinda m guntupalli and joerg baten 2006 and alexander moradi and baten 2005 differences in height between subpopulations such as lords and vassals or highlanders and lowlanders may also provide information on the distribution of resources between such subpopulations carles boix and frances rosenbluth 2006 in section 2 below i present a theoretical discussion of what to expect in section 3 i provide an analysis of adult heights in india where i can look at the relationship across states between a mean heights and expenditure inequality b inequality in height and expenditure inequality c men s and women s heights the difference in heights between men and women is of considerable importance in its own right india has one of the highest rates of child malnutrition in the world with around 55 percent of young children stunted a leading explanation for this is health discrimination against women vulimiri ramalingaswami urban jonsson and jon rohde 1996 if discrimination starts in early childhood and since all evidence suggests that there are regional differences in the treatment of women there should be clear traces in spatial patterns of relative heights between men and women

a behavioral understanding of investment horizon and firm performance observers have argued that firms overly emphasize short term results at the expense of long run value using a behavioral perspective we analyze three hypotheses related to this general argument first we examine the association of investment time horizons with firm performance contributing new theory that argues for a quadratic rather than linear association second because the tendency toward immediate results could reflect stock market pressures we consider how the interaction of investor patience and firm horizon relates to firm performance third we examine the argument s implication that most firms have investment horizons at a level where marginal increases in horizon associate positively with firm performance measuring horizon as the expected useful lives of capital expenditures we find empirical support for the hypothesized quadratic relation in a large scale multiyear sample of u s publicly held manufacturing firms and confirm that a majority of firms have horizons in the region where our models predict increases in horizon positively influence performance we also find that the most positive returns occur when long horizon investments are aligned with investor patience

cash crops in developing countries the issues the facts the policies the issue of cash crops is profoundly controversial the debate uses different definitions of the term and slides across levels of analysis from the household to the international economy it also cuts across arguments crops countries and time periods this paper sets out to order the debate it deals first with definitions and taxonomy and then reviews issues connected with cash crops and a growth b distribution c food security d dependency and e the environment the paper concludes that with appropriate policies cash crops can offer a route to equitable growth