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

adjustment costs and indeterminacy in perfect foresight models abstract this paper suggests a method for resolving indeterminacy of equilibrium in perfect foresight models and applies it to several existing models quadratic adjustment costs are introduced into models with multiple equilibria and the limiting behavior of the resulting solutions is studied as the adjustment costs go to zero the method is shown to be useful in selecting among feasible equilibria in examples in which there is local indeterminacy

natural resources curse or blessing are natural resources a curse or a blessing the empirical evidence suggests that either outcome is possible this paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources these include that a resource bonanza induces appreciation of the real exchange rate deindustrialization and bad growth prospects and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law corruption presidential democracies and underdeveloped financial systems another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad induces corruption especially in nondemocratic countries and keeps in place bad policies finally resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets the survey also offers some welfare based fiscal rules for harnessing resource windfalls in developed and developing economies

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

commodity windfalls democracy and external debt we examine the effects that windfalls from international commodity price booms have on external debt in a panel of 93 countries during the period 1970 2007 our main finding is that increases in the international prices of exported commodity goods lead to a significant reduction in the level of external debt in democracies but to no significant reduction in the level of external debt in autocracies to explain this finding we show that in autocracies commodity windfalls lead to a statistically significant and quantitatively large increase in government consumption expenditures in democracies government consumption expenditures did not increase significantl

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

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

democracy and development the devil in the details does democracy promote economic development this paper reviews recent attempts to address this question that exploited within country variation it shows that the answer is largely positive but also depends on the details of democratic reforms first the sequence of economic vs political reforms matters countries liberalizing their economy before extending political rights do better second different forms of democratic government lead to different economic policies and this might explain why presidential democracy leads to faster growth than parliamentary democracy third it is important to distinguish between expected and actual political reforms taking expectations of regime change into account helps identify a stronger growth effect of democracy

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

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

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

tax base variability and procyclical fiscal policy in developing countries abstract based on a sample of 56 countries we show that fiscal policy in the g7 countries appears to be acyclical while fiscal policy in developing countries is procyclical i e fiscal policy is expansionary in good times and contractionary in bad times to explain this puzzle we develop an optimal fiscal policy model in which running budget surpluses is costly because they create pressures to increase public spending given this distortion a government that faces large fluctuations in the tax base as is the case for developing countries will find it optimal to run a procyclical fiscal policy

the definition of stability in models with perfect foresight abstract frequently the stationary states of decentralized models with perfect foresight and more than one asset are saddlepoints in this note we develop a distinction between historical and nonhistorical variables then we use the distinction to define economic concepts of weak and strong local asymptotic stability which apply even for some saddlepoints we conclude with three examples

external debt capital flight and political risk abstract this paper explains the simultaneous occurence of large external debts private capital outflows and low domestic capital formation we consider a general equilibrium model in which two government types with conflicting distributional goals randomly alternate in office uncertainty over the fiscal policies of future governments generates capital flight and small domestic investment and induces the government to overaccumulate external debt the model also predicts that left wing governments are more inclined to restrict capital outflows than right wing governments finally we examine how political uncertainty affects the risk premium and how debt repudiation may occur after a regime change

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

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

international commodity prices growth and the outbreak of civil war in sub saharan africa to learn more about the effect of economic conditions on civil war we examine whether sub saharan civil wars are more likely to start following downturns in the international price of countries main export commodities the data show a robust effect of commodity price downturns on the outbreak of civil wars we also find that sub saharan countries are more likely to see civil wars following economic downturns in their main oecd export destinations

output value risk for commodity producers the uncertain benefits of diversification summary commodity price volatility has long been recognized as a main risk for commodity producers welfare and has led to diversification efforts less noticed has been the importance of commodity correlations and their increase after 2006 in the risk faced by producers to assess their impact we perform an empirical analysis of the market value of commodity producers output in a sample of 56 countries producing 26 commodities we find that diversification and correlations strongly explain output value volatility during 1987 2006 producers effectively specialized in a single commodity had an average output value volatility of 27 0 while producers of three or more commodities had a 12 7 volatility in this period average correlation was 8 and diversification was very effective in the 2007 12 period correlations averaged 26 and output volatilities for specialized and diversified commodities were 30 4 and 19 5 respectively thus reducing the benefit of diversification at a time of macroeconomic distress in 2013 16 output volatilities reverted to levels close to those in 1987 2006 as commodities decorrelated again our findings should be relevant to policy makers embarking in diversification efforts and in the analysis of macroeconomic risk of commodity producers

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

oil rents corruption and state stability evidence from panel data regressions abstract we examine the effects of oil rents on corruption and state stability exploiting the exogenous within country variation of a new measure of oil rents for a panel of 30 oil exporting countries during the period 1992 2005 we find that an increase in oil rents significantly increases corruption significantly deteriorates political rights while at the same time leading to a significant improvement in civil liberties we argue that these findings can be explained by the political elite having an incentive to extend civil liberties but reduce political rights in the presence of oil windfalls to evade redistribution and conflict we support our argument documenting that there is a significant effect of oil rents on corruption in countries with a high share of state participation in oil production while no such link exists in countries where state participation in oil production is low

resource windfalls and public debt a political economy perspective abstract can natural resource windfalls increase public debt in democracies adopting a political economy perspective we show that the answer is in the affirmative resource windfalls increase both the government s income and wealth the former mitigates the need to borrow whereas the latter encourages further borrowing as it improves its terms implying an ambiguous pure effect of resource windfalls on debt re election considerations shorten political time horizons and give rise to political myopia we show that higher political myopia induced by more stringent institutional re election restrictions magnifies the wealth effect turning positive the effect of resource windfalls on debt we test the model s predictions using a panel of u s states over the period 1963 2007 our identification strategy rests on constitutionally entrenched differences in gubernatorial term limits that provide plausibly exogenous variation in re election prospects and geographically based cross state differences in natural endowments our baseline estimates indicate that a resource windfall of 1 induces an increase of approximately 20 in the public debt of states with more stringent re election restrictions

dynamic determinacy and the existence of sunspot equilibria this paper relates the existence of stationary sunspot equilibria in the vicinity of a conventional stationary state to the phase diagram surrounding the latter we find that the local condition required for a unique equilibrium path returning to the stationary state following any slight disturbance of initial conditions is also sufficient to exclude stationary sunspot equilibria in the stationary state s immediate vicinity in that sense an eigenvalue condition familiar from dynamic analysis can tell us something about the possibilities of local sunspot activity as well journal of

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

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

do natural resources fuel authoritarianism a reappraisal of the resource curse a large body of scholarship finds a negative relationship between natural resources and democracy extant cross country regressions however assume random effects and are run on panel datasets with relatively short time dimensions because natural resource reliance is not an exogenous variable this is not an effective strategy for uncovering causal relationships numerous sources of bias may be driving the results the most serious of which is omitted variable bias induced by unobserved country specific and time invariant heterogeneity to address these problems we develop unique historical datasets employ time series centric techniques and operationalize explicitly specified counterfactuals we test to see if there is a long run relationship between resource reliance and regime type within countries over time both on a country by country basis and across several different panels we find that increases in resource reliance are not associated with authoritarianism in fact in many specifications we generate results that suggest a resource blessing

the quality of political institutions and the curse of natural resources we propose a theoretical model to explain empirical regularities related to the curse of natural resources which emphasises the behaviour and incentives of politicians we extend the standard voting model to give voters political control beyond the elections this gives rise to a new restriction that policies should not give rise to a revolution our model clarifies when resource discoveries might lead to revolutions namely in countries with weak institutions it also suggests that for bad political institutions human capital depends negatively on natural resources while for high institutional quality the dependence is reversed this finding is corroborated in cross section regressions

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

why is fiscal policy often procyclical many countries especially developing ones follow procyclical fiscal policies namely spending goes up taxes go down in booms and spending goes down taxes go up in recessions we provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less than benevolent government to appropriate rents voters have incentives similar to the starving the leviathan classic argument and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well we test this argument against more traditional explanations based purely on borrowing constraints with a reasonable amount of success

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

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

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

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

tax changes and phase diagrams for an overlapping generations model the literature evaluating tax changes within an intertemporal general equilibrium framework subdivides into representative agent and overlapping generations formulations papers in the former class have developed techniques analogous to those routine for static analyses i show that the same general approach works for the overlapping generations model the context is the system from auerbach and kotlikoff s dynamic fiscal policy the proposed methodology allows one to examine stability and determinancy issues for the model it deals precisely with small policy changes and it can easily handle bundles of changes i present comparative static results for comparison with existing work

institutions and the resource curse countries rich in natural resources constitute both growth losers and growth winners we claim that the main reason for these diverging experiences is differences in the quality of institutions more natural resources push aggregate income down when institutions are grabber friendly while more resources raise income when institutions are producer friendly we test this theory building on sachs and warner s influential works on the resource curse our main hypothesis that institutions are decisive for the resource curse is confirmed our results contrast the claims of sachs and warner that institutions do not play a role

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

corporate sponsored foundations and earnings management abstract this study examines the strategic use of corporate philanthropy programs to achieve financial reporting objectives corporate sponsored foundations allow managers to maintain stable levels of giving to charitable causes while providing substantial discretion as to the amount of contribution expense recorded on the income statement in any given period i find that firms reporting small earnings increases make income increasing discretionary foundation funding choices this result is associated with firms that have strong equity market incentives to manage earnings the evidence presented in this paper is consistent with firms using their charitable foundations as off balance sheet reserves

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

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

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

dynamic persistence of primary commodity prices this article examines the persistence of shocks to international commodity prices from 1900 to 2008 using the updated grilli yang index the main innovation of this study is that it determines whether commodity prices are characterized by multiple changes in persistence specifically bootstrap methods are used to estimate persistence and the associated half life shocks are calculated we find that the persistence of shocks can vary widely depending on the individual commodity and the time period the results suggest that policy makers need to exercise caution when introducing measures to cushion the effect of shocks to world commodity prices

are windfalls a curse abstract a puzzling feature of temporary terms of trade booms is that some countries have responded to such windfalls by running current account deficits furthermore those countries that ran current account deficits failed to attain greater post boom growth rates indicating the deficits were consumed or invested in low quality projects the point we make is that the structure of the fiscal process is critical in determining outcomes if fiscal control is unitary then the consumption smoothing effect is operative and representative agent models of the current account have predictive power however if control is divided among several fiscal claimants a voracity effect appears which counteracts the consumption smoothing effect leading to a deterioration of the current account in response to a positive temporary shock we model the interaction among fiscal claimants as a dynamic game and show that in equilibrium aggregate appropriation increases more than the windfall itself this results in a deterioration of the current account we also show that all the windfall is dissipated with the country experiencing no increase in welfare 1998 elsevier science b v

trade institution quality and income inequality summary we examine the effect of trade on income inequality in small developing countries we use two well accepted trade cost variables for identification one is based on baltic dry index and another is commodities price index our main finding is that trade leads to a significant reduction increase in income inequality in autocracies democracies to explain such different effects we provide supporting evidence that autocracies export more primary commodities and may follow the stolper samuelson theorem in ho framework while democracies active in manufacturing outsourcing may follow feenstra and hanson 1996 task model

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

financing vs forgiving a debt overhang abstract this paper examines the tradeoffs facing creditors of a country whose debt is large enough that the country cannot attract voluntary new lending if the country is unable to meet its debt service requirements out of current income the creditors have two choices they can finance the country lending at an expected loss in the hope that the country will eventually be able to repay its debt after all or they can forgive reducing the debt level to one that the country can repay the post 1983 debt strategy of the imf and the us has relied on financing but many current calls for debt reform call for forgiveness instead the paper shows that the choice between financing and forgiveness represents a tradeoff financing gives the creditors an option value if the country turns out to do relatively well creditors will not have written down their claims unnecessarily however the burden of debt distorts the country s incentives since the benefits of good performance go largely to creditors rather than itself the paper also shows that the tradeoff itself can be improved if both financing and forgiveness are made contingent on states of nature that the country cannot affect such as oil prices world interest rates etc

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

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

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

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

political foundations of the resource curse in this paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse we show 1 politicians tend to over extract natural resources relative to the efficient extraction path because they discount the future too much and 2 resource booms improve the efficiency of the extraction path however 3 resource booms by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections increase resource misallocation in the rest of the economy 4 the overall impact of resource booms on the economy depends critically on institutions since these determine the extent to which political incentives map into policy outcomes countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create countries without such institutions however may suffer from a resource curse

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

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

explaining ethiopia s growth acceleration the role of infrastructure and macroeconomic policy summary ethiopia has experienced an impressive growth acceleration over the past decade this was achieved on the back of an economic strategy emphasizing public infrastructure investment supported by heterodox macro financial policies this paper identifies the drivers of ethiopia s recent growth episode and examines the extent to which they were typical or unique it combines country specific information with the results of a cross country panel regression model we find that ethiopia s growth is explained well by factors correlating with growth in a broad range of countries in recent decades including public infrastructure investment restrained government consumption and a conducive external environment on the other hand we argue that the policy mix that supported very high levels of public investment in ethiopia was to some extent unique interestingly macroeconomic imbalances due to this heterodox policy mix only moderately held back growth which helps explain why ethiopia was able to grow so fast in spite of their presence their negative effects were quantitatively much less important than the positive growth drivers they helped to achieve the results suggest that getting infrastructure right may outweigh moderate shortcoming in the macro framework at early stages of development we further relate this country specific finding to the recent growth literature

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