the use of unsigned earnings quality measures in tests of earnings management this paper examines the implications of using the absolute value of discretionary accruals when testing for earnings management first we analytically develop the mean and variance of the distribution of absolute discretionary accruals and show that the expected value is an increasing function of the variance in the underlying error term from the first stage discretionary accrual estimation model second we highlight several firm characteristics that are related to the error variance in discretionary accrual estimation models using simulations we show that correlation between the earnings management partitioning variable and these firm characteristics leads to an overrejection of the null hypothesis of no earnings management third we provide research design suggestions to help researchers mitigate the potential bias arising from the use of unsigned measures of earnings management using these suggestions we replicate a recent study and demonstrate that the inferences change after controlling for operating volatility

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

labor market segmentation a cluster analysis of job groupings and barriers to entry real expenditures on public assistance programs have increased substantially in the past two decades as has real per capita income investments in a variety of education programs have risen and a number of jobs programs have been tried although there have been some gains for example a decline in the percentage of the population in poverty 31 474 a number of disparities persist unemployment remains at record levels and the prospect for sizable reductions in the unemployment rate seems quite small there are persistent differences between the mean household incomes of blacks and whites that have not narrowed at all during the past two decades 15 there is also a widespread perception that a disadvantaged segment of the u s population has no effective access to good jobs and if such persons get them they do not stay employed for long this means that many such adults are caught in a cycle of unemployment welfare dependency bad jobs and intermittent employment whereas there is nearly universal agreement that the persistent disparities in well being are undesirable there is considerable disagreement on what to do about this in part the disagreement stems from ignorance about the facts for example rigorous operational definitions of good and bad jobs have not been developed the notion that some persons do not have access to the good jobs is primarily based on anecdotes fortunately longitudinal data bases are now available that permit more rigorous empirical analysis of such issues

the value of corporate voting rights and control a cross country analysis this paper measures the value of corporate voting rights specifically of the control block of votes in a sample of 661 dual class firms in 18 countries in 1997 a consistent measure across countries is proposed the measure is adjusted for takeover probability block holding costs and dividend and liquidity differences between the share classes the value of controlblock votes varies widely across countries it is close to half of firm market value in south korea andclose to zero in finland the value of control block votes is interpretedas a lower bound for actual private benefits of the controlling shareholder the legal environment law enforcement investor protection takeover regulations andpower concentrating corporate charter provisions explain 68 of the cross country variation in the value of control block votes

workforce education and technical change bias in u s agriculture and related industries the number of hours devoted to value added output in the north american industry classification system naics sector agriculture forestry fishing and hunting is increasingly supplied by individuals with advanced schooling consistent with hypotheses of a positive relationship among technology development adoption and dissemination and a more highly skilled workforce we first test and then conclude that the composition of the workforce is closely aligned with measures of the state of technology consistent with many other studies technical change has been labor saving overall yet technologies adopted have reduced both the absolute and relative numbers of workers not progressing beyond high school the changing composition of the workforce and technical change have driven an average wedge of 31 between reported wages and wages augmented by our estimates of the state of technology this gap was greater in the period prior to the mid 1980s when many of the changes in the education levels of the labor force occurred using estimates from the entire 1947 2010 period the quantity of work provided by the worker hired in 2010 was 31 greater than if no change in labor composition had occurred

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

a multi state analysis of the targeted jobs tax credit programme 1989 a multi state analysis of the targeted jobs tax credit programme applied economics vol 21 no 1 pp 85 94

induced innovation evolutionary theory and path dependence sources of technical change the i960s to the i98os were very productive of new theory and empirical insights into the sources of technical change in the i96os and i970s major attention focused on the implications of changes in demand and relative factor prices on the rate and direction of technical change in the late i 970s and early i980s attention shifted to evolutionary models inspired by a revival of interest in schumpeter s insights into the process of economic development since the early i98os these have been complemented by the development of historically grounded path dependent models of technical change each of these models has contributed substantial insight into the sources of technical change this paper was motivated by a perception that each of the three research agendas is approaching a dead end the three models induced evolutionary and path dependent represent elements of a more general theory that has not yet been invented ruttan 1996 a in a closing comment i suggest some steps toward the development of a more general theory of the sources of technical change

earnings management under price regulation empirical evidence from the spanish electricity industry abstract this paper analyses the effect of price regulation on the accounting policy of spanish electricity companies over the period 1991 2001 as predicted by the political costs hypothesis watts and zimmerman 1986 watts r l zimmerman j l 1986 positive accounting theory prentice hall englewood cliffs nj managers artificially reduce reported earnings when the government establishes tariff increases in this way companies attempt to diminish their political visibility and counteract social outcry arising from the government s decision several abnormal accruals models existent in the literature are used to obtain a proxy for managerial accounting discretion on earnings

performance shocks and misreporting we propose a parsimonious stochastic model of reported earnings that links misreporting to performance shocks our main analytical prediction is that misreporting leads to a negative second order autocorrelation in the residuals from a regression of current earnings on lagged earnings we also propose a stylized dynamic model of earnings manipulation and demonstrate that both earnings smoothing and target beating considerations result in the same predictions of negative second order autocorrelations empirically we find that the distribution of this measure is asymmetric around zero with 27 of the firms having significantly negative estimates using this measure we specify a methodology to estimate the intensity of misreporting and to create estimates of unmanipulated earnings our estimates of unmanipulated earnings are more correlated with contemporaneous returns and have higher volatility than reported earnings with respect to economic magnitude we find that in absolute terms median misreporting is 0 7 of total assets moreover firms in our sample subject to sec aaers have significantly higher estimates of manipulation intensity

individualism collectivism private benefits of control and earnings management a cross culture comparison using private benefits of control and earnings management data from 41 countries and regions we provide strong evidence that cultures together with legal rules and law enforcement play a critical role in shaping corporate behavior more specifically we find that private benefits of control are larger and earnings management is more severe in collectivist as opposed to individualist cultures consistent with the argument that agency problems between corporate insiders and outside investors are severe in collectivist culture these results are robust to the inclusion of controls for country wealth economic heterogeneity across countries and international differences in ownership concentration

labor unemployment insurance and earnings management abstract we provide new evidence that firms appear to manage long run earnings upward in order to manage rank and file employees perceptions of employment security in particular we exploit exogenous state level changes in unemployment insurance benefits and test for partial unwinding of prior upward earnings management when benefits increase consistent with the hypothesis we find a significant reduction in abnormal accruals increased recognition of special items and write downs and greater likelihood of net income reducing restatements following an increase in state level unemployment benefits a number of cross sectional results are also consistent with the hypothesis

the contracting benefits of accounting conservatism to lenders and borrowers abstract this paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt contracting process i expect conservatism to benefit lenders ex post through the timely signaling of default risk as manifested by accelerated covenant violations and to benefit borrowers ex ante through lower initial interest rates consistent with these predictions i find that more conservative borrowers are more likely to violate debt covenants following a negative price shock and that lenders offer lower interest rates to more conservative borrowers

factors associated with the year end decline in working capital working capital is an important indicator of firm operational efficiency all else being equal lower levels signal greater efficiency managers are thus likely to be motivated to report lower levels of working capital at times of greater external attention we find that working capital levels decrease in the fourth fiscal quarter significantly more than expected conditional on seasonal changes in economic activity the decrease subsequently reverses in the following first fiscal quarter evidence indicates that firms manage down year end working capital through transactions that increase year end operating cash flow and that firms spread this activity over all working capital accounts finally the temporary decrease in year end working capital is correlated with compensation benchmarks and analysts annual cash flow forecasts the temporary drop is also more pronounced for firms with industry dominance this paper was accepted by mary barth accounting

control rights and capital structure an empirical investigation we show that incentive conflicts between firms and their creditors have a large impact on corporate debt policy net debt issuing activity experiences a sharp and persistent decline following debt covenant violations when creditors use their acceleration and termination rights to increase interest rates and reduce the availability of credit the effect of creditor actions on debt policy is strongest when the borrower s alternative sources of finance are costly in addition despite the less favorable terms offered by existing creditors borrowers rarely switch lenders following a violation a fundamental question in financial economics is how do firms choose their financial policies extant empirical research on this question has focused primarily on the presence of taxes and bankruptcy costs e g scott 1976 information asymmetry e g myers and majluf 1984 and more recently market timing behavior e g baker and wurgler 2002 however beginning with jensen and meckling 1976 a large body of theoretical research examines how incentive conflicts between managers and external investors affect corporate financial policies in particular theoretical research on financial contracting shows that in the presence of incentive conflicts optimal debt contracts will allocate certain rights to creditors after negative performance in order to help firms secure financing ex ante e g aghion and bolton 1992 and dewatripont and tirole

the determinants of est adoption by manufacturing plants in developing countries abstract this article reports on the findings of a survey undertaken in late 2001 early 2002 on the determinants of environmentally sound technology est adoption by 98 plants in eight developing countries we review the literature on technology diffusion and technology capabilities as well as empirical studies with an exclusive focus on developing countries that explicitly addressed environmental performance or est adoption to formulate our heuristic model that guided our investigation we examine in some detail the determinants of both prevention and abatement technologies which has seldom been investigated in developing countries in full recognition of literature that cites a host of reasons that cause plants to adopt est we take into account both contextual and plant specific factors we use an ordered choice model that revealed that plant specific factors assume a pre dominant role in explaining the adoption of higher order of complexity est plant specific factors specifically environmental commitment technological capabilities and ownership and market factors specifically foreign involvement and water and energy price perception matter in determining the type of technological response and thus in explaining the adoption of higher order complexity est two governmental factors regulatory implementation strategy and international donor assistance also play a role in the adoption of est however civil society in particular community pressure that has been identified as an important determinant of environmental performance does not play a role because of the way the dependent variable is constructed to capture higher orders of technological complexity

employment tax credit programs the effects of socioeconomic targeting provisions argentina s proempleo experiment conducted in 1998 2000 was designed to assess whether a wage subsidy and specialized training could assist the transition from workfare to regular work randomly sampled workfare participants in a welfare dependent

concentrated control institutions and banking sector an international study abstract using a broad sample of listed commercial banks in east asia and western europe this paper investigates the relations among concentrated control a set of bank operating characteristics and legal and regulatory regimes we find that banks with concentrated control exhibit poorer performance lower cost efficiency greater return volatility and higher insolvency risk relative to widely held ones we also document that legal institutions and private monitoring effectively reduce the detrimental effects of concentrated control and that official disciplinary power plays a weak governance role whereas government intervention exacerbates the adverse effects further evidence shows that the relations between control concentration and bank operating characteristics are curvilinear and vary according to the types of controlling owners overall our findings support the contention that country level institutions play important roles in constraining insider expropriation and that private monitoring mechanisms are more effective than are public rules and supervision in governing banks

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

languages and earnings management abstract we predict that managers of firms in countries where languages do not require speakers to grammatically mark future events perceive future consequences of earnings management to be more imminent and therefore they are less likely to engage in earnings management using data from 38 countries we find that accrual based earnings management and real earnings management are less prevalent where there is weaker time disassociation in the language our study is the first to examine the relation between the grammatical structure of languages and financial reporting characteristics and it extends the literature on the effect of informal institutions on corporate actions

paradigm changing vs paradigm deepening innovation how firm scope influences firm technological response to shocks we examine the direction of firms research efforts as they respond to the shock of a sharp increase in the price of a key input in terms of direction firms can respond to this shock with paradigm changing investments that develop technologies to use substitute inputs or with paradigm deepening investments that develop technologies to improve the utilization efficiency of the existing input we develop a framework that suggests that firms emphasis on paradigm changing versus paradigm deepening investments depends on the degree of input relatedness across their businesses we test our hypotheses by examining the responses of large manufacturing firms in the united states to the oil shock of the early 1980s our framework predicts and our results show that the more related a firm s businesses are the larger its investments into paradigm changing technologies are and the smaller its investments into paradigm deepening technologies in response to the oil shock are we identify the implications of these findings for technological evolution and diversification literatures

opaque bank assets and optimal equity capital abstract banks assets are opaque and therefore we model their true accounting asset values as partially observed variables we derive a stochastic control model to optimize banks dividend and recapitalization policies in this situation and calibrate that to a sample of u s banks by the calibrated model the noise in reported accounting asset values hides about one third of the true asset return volatility and raises the banks market equity value by 7 8 particularly those banks with a high level of loan loss provisions nonperforming assets and real estate loans and with a low volatility of reported total assets have noisy accounting asset values because of the substantial shock on the true asset values the banks assets were more opaque during the recent financial crisis

geographic aggregation and induced innovation in american agriculture the induced innovation hypothesis is tested for the usa and western regions using cointegration procedures an error correction model separates short run and long run effects of relative price changes a significant difference in the elasticities of factor substitution along the isoquant and the innovation possibility curve implies induced innovation the estimated results support the hypothesis for washington the pacific northwest and the western region but not for the nation corroborative tests of weak exogeneity fail to support the hypothesis in any of the geographic units changes in output level and research investment do not significantly bias agricultural technology in the usa

divergence of cash flow and voting rights opacity and stock price crash risk international evidence this study investigates whether and how the deviation of cash flow rights ownership from voting rights control or simply the ownership control wedge influences the likelihood that extreme negative outliers occur in stock return distributions which we refer to as stock price crash risk we do so using a comprehensive panel data set of firms with a dual class share structure from 20 countries around the world for the period of 1995 2007 we predict and find that opaque firms with a large wedge are more crash prone than opaque firms with a small wedge in addition we predict and find that the positive relation between the wedge and crash risk is less pronounced for firms with more effective external monitoring and for firms with greater growth opportunities the results of this study are broadly consistent with jin and myers s theory that agency costs combined with opacity exacerbate stock price crash risk

on the nature of technologies knowledge procedures artifacts and production inputs in the most general terms a technology can be seen as a human constructed means for achieving a particular end such as the movement of goods and people the transmission of information or the cure of a disease these means most often entail procedures regarding how to achieve the ends concerned particular bits of knowledge artifacts and of course specific physical inputs necessary to yield the desired outcomes in fact the procedures and the underlying knowledge they draw upon the physical and intangible inputs implicated and the performance characteristics of outputs are different but complementary aspects of what technology is these things are the object of this short essay copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

insiders incentives for asymmetric disclosure and firm specific information flows abstract recent research suggests that insiders incentives for capturing cash flows affect price formation process in which insiders are inclined to withhold good news and to accelerate the release of bad news jin and myers 2006 we investigate whether insiders incentives for private control benefit proxied by control ownership wedge affect firm specific return characteristics we find that control ownership wedge is negatively related to the likelihood of positive return jumps and positively related to the extent of asymmetric market reaction to good news rather than to bad news overall our results support the notion that corporate insiders increase opaqueness and withhold good news in order to capture unexpected cash flow

does religion mitigate earnings management evidence from china using a sample of 11 357 firm year observations from the chinese stock market for the period of 2001 2011 we investigate whether and how religion can mitigate earnings management specifically based on geographic proximity based religion variables we provide strong and robust evidence to show that religion is significantly negatively associated with the extent of earnings management suggesting that religion can serve as a set of social norms to mitigate corporate unethical behavior such as earnings management our findings also reveal that the negative association between religion and earnings management is less pronounced for firms with closer distance to the regulatory centers than for their counterparts implying the substitutive effects between religion and the distance to regulators the proxy for regulatory intensity on mitigating earnings management the above results are robust to different measures of earnings management various religion variables and a variety of sensitivity tests

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

globalizing carbon lock in this paper extends the arguments surrounding carbon lock in elaborated in unruh energy policy 28 2000 817 30 2002 317 to countries currently undergoing industrialization it argues that for numerous reasons industrializing countries are unlikely to leapfrog carbon intensive energy development on the contrary carbon lock in may be globalizing and could further constrain climate change mitigation options it is then argued that many policy recommendations ignore carbon lock in possibly limiting their potential for successful implementation the paper then discusses four policy approaches that appear to have advantages given lock in conditions it is recognized however that relative ease of implementation does not necessarily equate with superiority instead it is merely a path dependent outcome of past development decisions pursuing policies on the basis of relative implementation ease may help address the issue of climate change but could also result in sub optimal outcomes along other dimensions of sustainable development

competition and innovation evidence from financial services abstract this paper presents new evidence on the relationship between competition and innovation by extending previous literature from manufacturing to financial services we introduce a new measure of overall innovation by estimating and enveloping annual minimum cost frontiers to create a global frontier the distance to the global frontier constitutes each bank s technology gap which decreases if the bank manages to innovate our innovation measure enables us to derive and estimate the model of aghion et al 2005b at the firm level for the us banking industry based on individual bank call report data for the period 1984 2004 consistent with theoretical and empirical work by aghion et al we find evidence of an inverted u relationship between competition and innovation that is robust over several different specifications further evidence on major structural changes in the us banking industry indicates that banks moved beyond their optimal innovation level and that interstate banking deregulation resulted in lower bank innovation policy implications to financial reform and prudential regulation are discussed also

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

on the use of instrumental variables in accounting research abstract instrumental variable iv methods are commonly used in accounting research e g earnings management corporate governance executive compensation and disclosure research when the regressor variables are endogenous while iv estimation is the standard textbook solution to mitigating endogeneity problems the appropriateness of iv methods in typical accounting research settings is not obvious drawing on recent advances in statistics and econometrics we identify conditions under which iv methods are preferred to ols estimates and propose a series of tests for research studies employing iv methods we illustrate these ideas by examining the relation between corporate disclosure and the cost of capital

carbon taxation in russia prospects for a double dividend and improved energy efficiency russia is not only one of the world s major sources of carbon based energy coal oil and gas but is also one the most intensive users of energy furthermore russia accounts for a disproportionately large share of global carbon dioxide emissions some 5 to 6 of global carbon dioxide emissions eia 2011a it has been estimated world bank 2008 that russia could reduce its use of primary energy use by 45 with consequent economic and environmental benefits high energy and carbon intensity of the russia economy is inter alia explained by low energy prices due to high export taxes as well as administrative regulation of domestic prices of gas and electricity and low environmental taxes carbon taxes are one such pigouvian tax and they would address concerns on several fronts simultaneously in the short to medium term they would inter alia lead to lower ghg emissions and encourage the diffusion of more energy efficient technologies in the longer term the increased cost of energy inputs is expected to induce technological progress in this analysis the macroeconomic and sectoral effects of carbon taxes on the russia economy are examined this analysis addresses the following objectives i to test the double dividend hypothesis under perfect and imperfect competition in output markets to analyse ii the incidence of carbon taxes iii impacts on sectoral competitiveness iv effects on income equity and v interactions of carbon taxes with other taxes a computable single country multi sector comparative static cge model is employed russland verfugt nicht nur uber einen der grosten vorrate an kohlenstoffbasierter energie wie kohle rohol und gas sondern ist auch einer der grosten energieverbraucher daruber hinaus ist russland fur einen uberproportional grosen anteil von kohlendioxid emission etwa 5 bis 6 der weltweiten kohlendioxidemission verantwortlich mit der einfuhrung einer kohlendioxidsteuer konnten gleichzeitig unterschiedliche wirkungen erzielt werden kurz und mittelfristig wurden kohlenstoffsteuern sowohl zu einer reduzierung von treibhausgasemissionen als auch zur einfuhrung von energieeffizienteren technologien fuhren langfristig wird erwartet dass hohe energiekosten den anreiz zur entwicklung und zur investition in energiesparenden technischen fortschritt erhohen die vorliegende arbeit analysiert und bewertet die makrookonomischen und sektoralen auswirkungen einer einfuhrung von kohlenstoffsteuern auf die russische wirtschaft die ziele der arbeit bestehen darin die hypothese der doppelten dividende fur den fall des vollkommenen und des unvollkommenen wettbewerbs auf gutermarkten zu uberprufen und die inzidenz einer kohlenstoffsteuer ihre auswirkungen auf die sektorale wettbewerbsfahigkeit ihre auswirkungen auf die einkommensverteilung und die interaktion von kohlenstoffsteuern mit anderen steuern zu analysieren und zu bewerten als methodischer ansatz wurde ein single country und multi sektor model gewahlt

ownership concentration in privatized firms the role of disclosure standards auditor choice and auditing infrastructure we rely on a unique data set to estimate the impact of disclosure standards and auditor related characteristics on ownership concentration in 190 privatized firms from 31 countries accounting transparency can help alleviate the agency conflict between minority investors and controlling shareholders which is evident in the extent of ownership concentration since the expropriation of corporate resources by insiders hinges on these private benefits remaining hidden after controlling for other country level and firm level determinants we find weak no evidence that extensive disclosure standards auditor choice reduce ownership concentration in contrast we provide strong robust evidence that ownership concentration is lower in countries with securities laws that specify a lower burden of proof in civil and criminal litigation against auditors consistent with ball s 2001 predictions collectively our research implies that minority investors worldwide value legal institutions that discipline auditors in the event of financial reporting failure over both the presence of a big five auditor and better disclosure standards

accounting information in financial contracting the incomplete contract theory perspective this paper reviews theoretical and empirical work on financial contracting that is relevant to accounting researchers its primary objective is to discuss how the use of accounting information in contracts enhances contracting efficiency and to suggest avenues for future research we argue that incomplete contract theory broadens our understanding of both the role accounting information plays in contracting and the mechanisms through which efficiency gains are achieved by discussing its rich theoretical implications we expect incomplete contract theory to prove useful in motivating future research and in offering directions to advance our knowledge of how accounting information affects contract efficiency

family control socioemotional wealth and earnings management in publicly traded firms we examine the unique nature of agency problems within publicly traded family firms by investigating the earnings management decision of dominant family owners relative to non family to do so we draw upon literature demonstrating that family owners are loss averse with respect to the family s socioemotional wealth or the affective endowment derived from firm ownership and control our theory and findings suggest that potential reputational consequences of earnings management lead family principals to engage in less of this practice relative to non family firms and that founder family firms are less likely than non founder family firms to use earnings management moreover the family firm effect varies with the firm size the degree of ceo entrenchment and the firm s stock structure we provide important insights regarding differences between family and non family principals in the use of unethical accounting practices thereby extending agency theory and advancing an underdeveloped research area

biodiversity conservation in a dynamic world may lead to inefficiencies due to lock in effects and path dependence abstract although biodiversity is generally diminishing in some areas its conservation is expanding however the exact path of this expansion is uncertain this can lead to problems of path dependence and lock in effects path dependence describes situations where history strongly influences present decisions and lock in effects refer to situations where an earlier decision provides strong incentives to follow a particular path even if more efficient alternatives are available later on we develop a conceptual ecological economic model to investigate which ecological and economic parameters favour the appearance of efficiency losses in biodiversity conservation due to path dependence and lock in effects in a dynamic two period two region model generally we find that efficiency losses occur if there are signals that guide the first period budget into a region that later turns out to be suboptimal if both time periods had been considered right from the beginning to illustrate the conservation relevance of our findings we present potential efficiency losses through path dependence in the hypothetical case of applying offsets to conserving the endangered maculinea teleius butterfly near the city of landau in germany

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

is demand pulled innovation equally important in different groups of firms previous empirical literature has tested the demand pull hypothesis and found that innovation may be driven by output using a balanced panel of 216 italian manufacturing firms 1995 2000 and checking for the path dependent nature of r d we find a role of sales in inducing r d however the demand pull effect plays a varying role for different sub samples of firms exporting firms liquidity constrained firms not subsidised firms and those not heading a group seem to be sensitive to sales in deciding r d these results have been obtained using a least squares dummy variable corrected estimator a recent panel data technique suitable for small samples

ultimate ownership income management and legal and extra legal institutions this study provides evidence of the role of both legal and extra legal institutions in limiting the income management induced by the detachment of control rights from the cash flow rights of ultimate owners the tests use a unique comprehensive data set for firm level control and ownership structures from 9 east asian and 13 western european countries univariate regressions show that income management that is induced by the wedge between control rights and cash flow rights is significantly limited in countries with high statutory protection of minority rights proxied by legal tradition minority rights protection the efficiency of the judicial system or disclosure standards and effective extra legal institutions proxied by the effectiveness of competition laws diffusion of the press and tax compliance furthermore multiple regression results show that a common law tradition and an efficient judicial system subsume the effects of the other legal institutions and that a high rate of tax compliance subsumes the effects of the other extra legal institutions in curbing insider income management it is surprising that a high rate of tax compliance ultimately has a greater effect than legal tradition and the efficiency of the judicial system although this finding is unexpected given prior evidence on the dominant roles of legal institutions in macroeconomic issues and corporate policies it is consistent with the recent argument that effective tax enforcement is like a public good in that it can reduce insiders private control benefits an implication of this finding is that closer attention to extra legal institutions has the potential to enhance our understanding of the institutional reforms needed to limit insider private control benefits

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

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

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

carbon taxation and market structure a cge analysis for russia abstract russia is one of the world s major sources of carbon based energy as well as one its most intensive users introducing carbon taxes can lead to a reduction in emissions and encourage investment in energy efficiency we investigate the economic effects of carbon taxes on the russian economy under perfect competition and a cournot oligopoly in output markets the main findings are i substituting carbon taxes for labour taxes can yield a strong double dividend in russia however welfare gains strongly depend on the labour supply elasticity and elasticities of substitution between capital labour and energy ii under the assumption of a cournot oligopoly with homogenous products and symmetric firms in the markets for natural gas petroleum and chemical products metals and minerals welfare costs of the environmental tax reform can be higher than under perfect competition this is because introducing carbon taxes leads to a reduction in already sub optimal output thereby exacerbating pre existing distortions arising from imperfect competition iii furthermore increases in energy costs can result in higher mark ups in some markets because of less competition resulting from firms exit

does corporate governance risk at home affect investment choices abroad abstract disparity between control and ownership rights gives rise to the risk of tunneling by the controlling shareholder and is prevalent in many emerging market economies and present in some developed countries at the same time international investors come from different countries whose home markets are characterized by varying degrees of control ownership disparity this paper studies whether this difference in investors home countries affects their portfolio choice in an emerging market it combines two unique data sets on ownership and control in business groups and investor stock level foreign investment in korea a key finding is that investors from low disparity countries disfavor high disparity stocks in korea but investors from high disparity countries are indifferent moreover investors from low disparity countries became averse to disparity only after the asian financial crisis these results suggest that the nature of corporate governance in international investors home countries affects their portfolio choice abroad and therefore these investors should not be lumped together in the analyses of their portfolio choice

a test of dual labor market theory despite substantial differences in their views of the appropriate policy response to the existence of poverty neither the proponents of dual market theory nor its critics have proposed potentially conclusive tests of the dual market hypothesis this paper presents a test of the two central propositions of dual market theory 1 the existence of two distinct labor markets with different wage setting mechanisms and 2 the existence of barriers to mobility between the labor markets we find considerable support for both hypothesis estimation of a switching model of wage determination with unknown regimes yields two distinct wage equations the one which most workers are associated with closely resembles the standard human capital regression with significant returns to education and experience the other equation is flat with no returns to human capital these two equations resemble the predictions of dual market theory for the primary and secondary markets respectively further we present evidence that at least some non white workers are involuntarily confined to the secondary market this crowding of minority workers into the low wage labor market accounts for a substantial portion of white non white wage differences we interpret these results as providing empirical support for the dual market hypothesis and for recent theoretical work on efficiency wagemodels in addition combining the efficiency wage argument with the observation that much of the white non white wage difference is explained by the exclusion of non whites from the primary sector suggests an explanation for the persistance of wage differences this abstract was borrowed from another version of this item

relationships among circumstance pressure green technology selection and firm performance in their quest for greater sustainability firms need to deal with many variables that ultimately determine the selection of green technologies previous studies of the possible link between the application of green technology and firm performance have generally produced mixed results similarly studies of the relationship between environmentally friendly strategies and firm performance have also been inconclusive based on an extensive empirical study with 533 respondents from 98 firms in the chinese manufacturing industry we try to identify the essential factors and test the links among variables in the decision making process for green technology selection we use an integrated structure equation model to test the complexity of a firm s technology adoption the relationships among the various variables are tested based on empirical data from our questionnaire more specifically we measure the influences on green technology selection imposed by task oriented circumstances direct stakeholders market environment financial and social dynamics and macro circumstances legislation social and technological development phases etc the results show significant relationships between green technology selection and certain task oriented circumstances and macro circumstances which may facilitate proper action on the part of firms with regard to green practices based on our findings we present some managerial implications and insights that might be useful for adopters of green technologies and enhance environmental and overall performance we also discuss the limitations of our methodology at the end of the paper

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

when green isn t mean economic theory and the heuristics of the impact of environmental regulations on competitiveness and opportunity cost abstract the conventional neoclassical economic wisdom argues that the opportunity costs of environmental regulations are high with negative implications for costs and profits and by implication for growth and per capita gross domestic product gdp the minority view that environmental controls induce cost offsets that minimise such opportunity costs is marginalised by the conventional wisdom which assumes that economic agents are x efficient in production a behavioral model of the firm is presented in this paper whereby x inefficiency in production prevails even in a world of perfect product market competition that is dominated by rational economic agents in this model environmental regulations affect both the level of x efficiency and the extent of technological change and greener firms can be cost competitive and profitable however private economic agents cannot be expected to adopt green economic policy independent of regulations since in this model there need not be any economic advantage accruing to the affected firms in becoming greener

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

why new issues and high accrual firms underperform the role of analysts credulity we find that analysts forecast errors are predicted by past accounting accruals adjustments to cash flows to obtain reported earnings among both equity issuers and nonissuers analysts are more optimistic for the subsequent four years for issuers reporting higher issue year accruals the predictive power is greater for discretionary accruals than nondiscretionary accruals and is independent of the presence of an underwriting affiliation predicted forecast errors from accruals significantly explain the long term underperformance of new issuers the predictability of forecast errors among nonissuers suggests that analysts credulity about accruals management more generally contributes to market inefficiency copyright 2002 oxford university press

technological change in economic models of environmental policy a survey this paper provides an overview of the treatment of technological change in economic models of environmental policy numerous economic modeling studies have confirmed the sensitivity of mid and long run climate change mitigation cost and benefit projections to assumptions about technology costs in general technical progress is considered to be a noneconomic exogenous variable in global climate change modeling however there is overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous induced by needs and pressures hence some environmenteconomy models treat technological change as endogenous responding to socio economic variables three main elements in models of technological innovation are i corporate investment in research and development ii spillovers from r d and iii technology learning especially learning by doing the incorporation of induced technological change in different types of environmental economic models tends to reduce the costs of environmental policy accelerates abatement and may lead to positive spillover and negative leakage

a century long perspective on agricultural development this article strategically surveys the past century s literature on agricultural development we organize the discussion around three grand themes that reveal the richness of agricultural development as an intellectual endeavor first we explore the role of agriculture in the broader development process from a macroeconomic and political economy perspective we then examine the role of technological and institutional change in successful agricultural development finally the focus turns to a microeconomic perspective on agricultural household decision making and the problems of imperfect and missing markets asymmetric information and transactions costs that lead to widespread apparent inefficiency and disequilibrium

the effect of ethical orientation and professional commitment on earnings management behavior the purpose of this study is twofold the first objective is to examine the impact of an individual s ethical ideology and level of professional commitment on the earnings management decision the second objective is to observe whether the presence of a personal benefit affects an individual s ethical orientation or professional commitment within the context of an opportunity to manage earnings using a sample of 375 undergraduate business majors our results suggest a significant relationship between an individual s ethical orientation and decision making further participants with higher levels of professional commitment seem to be less likely to engage in earnings management behavior and less likely to behave opportunistically these results have the potential to add to our understanding of certain behaviors in entry level personnel and should be of interest to managers practitioners academicians and researchers

localized technological change and efficiency wages across european regional labour markets antonelli c and quatraro f localized technological change and efficiency wages across european regional labour markets regional studies internal labour markets and industrial relations in continental europe are characterized by substantial rigidity of employed labour engendered by the tight conditions of regional labour markets this rigidity affects both the rate and the direction of technological change the increase of wages induces the localized introduction of biased technological change with clear effects on productivity levels the empirical evidence across a sample of european regions confirms the significant role of the changes in wages both on the increase of the output elasticity of labour and on multifactor productivity

economic history and the modern economist in this book nine economists and economic historians express their concern for the present state of economics and its development in the future from a variety of different approaches these scholars reassert the importance of economic history in the training of economists and urge that this perspective should not be lost in the future

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

first mover advantage and the speed of competitive entry 1887 1986 abstract this paper examines historical changes in the duration of the interval between the commercial introduction of a new product and the time when entry by later competitors begins a priori reasons are examined why the duration of this interval in the u s economy may either expand or contract data for 46 major product innovations however show a systematic tendency for the interval identified above to contract over the last century the average time span was almost 33 years at the turn of the century and has declined to 3 4 years for innovations in 1967 86 empirical evidence suggests this change resulted largely from a lowering of absolute cost advantages of first movers through easier transfer of knowledge and skills across firms and was also facilitated by the growth of markets

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

comparing abnormal accruals models a non parametric approach the purpose of this study is to compare the distribution of discretionary accruals produced by the standard and modified jones models using a non parametric approach evidence is provided that discretionary accruals produced by the two models have an almost identical distribution moreover it is found that whether or not an intercept is included in the model produces more intra distribution mobility than the use of the standard or the modified version of the model

subdividing the commons distributional conflict in the transition from collective to individual property rights in kenya s maasailand summary this paper suggests that explanations of property rights transformation need to move beyond models of relative price change and state enforcement to include accounts that accommodate conflict and competition among actors and the possibility that state actors may not provide the enforcement that is often taken for granted the transition from collective to individualized holdings in kenya s maasailand is burdened with politics and procedural problems that can undermine the gains anticipated in that move moreover in semi arid ecological settings individualization results in unstable land holdings necessitating re contracting and reaggregation by individual parcel owners

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

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

legal inforcement short maturity debt and the incentive to manage earnings abstract prior research contends that weak legal regimes discourage lender enforcement of contracts by making it either costly or ineffective however diamond observes that this lender passivity can be overcome by structuring debt as a short term loan his argument is that an arrival of bad news in the presence of short term debt can result in externalities that will trigger a run on the firm and that this in turn creates ex ante incentives for lenders to enforce their contracts we examine whether short term debt creates an incentive for borrowers to delay the recognition of bad news through earnings management using a sample of firm level data from 33 countries over a 10 year period we find that short term debt induces greater earnings management this impact of short term debt is especially greater in countries with weak legal regimes this evidence is consistent with the hypothesis that borrowers will manage earnings to circumvent lender enforcement