Sustainability reporting: The role of “Search”, “Experience” and “Credence” information

Corporate sustainability reporting quality has been frequently criticised as being unbalanced, presenting an overly positive view or failing to address material issues. The purpose of this article is to provide a fresh explanation for poor quality sustainability reporting and to propose how quality issues may be addressed. The theoretical framework combines the legitimacy and accountability perspectives using Akerlof's (1970) Market for Lemons theory. Akerlof's approach is extended by differentiating between three types of information in sustainability reports namely search, experience and credence. The article concludes that the type of information must be considered when determining measures to improve report quality.     

Two scenarios for Europe: “Europe confronted with high energy prices” or “Europe after oil peaking”

A significant change in trends regarding energy prices (in particular oil) has taken place in 2003 at the beginning of the Iraq War. It has revealed a very strong tension between oil prices on the one hand and the relationship between global oil supply and demand on the other. The strong growth rates of emerging economies up to 2008 have generated a very sharp increase in oil prices. The temporary economic recession of 2008-2009 has resulted in turn into a significant decrease of oil prices, down to a level which remained, however, twice as high as that of early 2003. With the economy recovering from the recession, it is highly probable that energy prices will continue to increase and that Europe will be confronted with high energy prices in the coming decades. Against this general background, two scenarios have been elaborated which differ mainly by the time of occurrence of oil peaking.¹ The differences between the scenario hypotheses are therefore differences of context in relation to exogenous factors. Policies are also considered in the scenarios, but they are not at the forefront and their impact is considered as limited in relation to that of exogenous factors.The first scenario “Europe in a context of high energy price” assumes that the process of oil peaking will not take place before 2030, but that oil price increase will nevertheless be sustained and substantial until then. Numerous adjustments will have to be made in the economy and their territorial impacts will be significant (less polycentricity, more compact cities, decline of the importance of road and air transport). The second scenario “Europe after oil production peaking” assumes that oil production will peak around the mid-2010s (followed by gas production peaking around 2025), despite significant investments to increase production. In a context of steadily growing oil and gas demand, Europe will be confronted with serious economic difficulties. The territorial impacts will be different from those suggested by the first scenario, with stronger pressure put on rural areas and a loss of attractiveness of large cities related to increasing unemployment and social tensions. In both scenarios, the countries of central and eastern Europe will be more severely hit by the new energy context.The scenarios were elaborated in 2005 and slightly reviewed in 2009 in order to take account of the impacts of the economic recession in Europe and of the growing concerns about climate change.     

Accounting “Boot Camp”

This study examines the effectiveness of a program designed to set appropriate student expectations and motivate students to put forth the necessary effort to succeed in intermediate accounting and other upper-division accounting courses. At a mid-sized public university in the Western US many students enrolled in Intermediate Accounting I (their first upper-division course) struggle with the rigor and academic demands of this course, resulting in failure rates of 30–45%. In many cases, students new to upper-division courses appear to lack a commitment to, or awareness of, the effort needed for success in the accounting program. The faculty implemented an accounting “Boot Camp” to prepare new accounting majors for the expectations of the program. This paper details the implementation of the Boot Camp and reviews its effectiveness by comparing the performance of attendees with the performance of non-attendees. After controlling for other contributing factors, the evidence suggests that attendees outperform their non-attending peers in Intermediate Accounting I. This relatively low-cost intervention should be attractive to faculty concerned about the common problem of students failing and then retaking intermediate accounting.     

Direct and indirect knowledge spillovers: the “social network” of open‐source projects

Knowledge spillovers are a central part of knowledge accumulation. The article focuses on spillovers that occur through the interaction between different researchers or developers who collaborate on different research projects. The article distinguishes between project spillovers and contributors’ spillovers and between direct and indirect spillovers. The article constructs a unique data set of open source software projects. The data identify the contributors who work on each project and thus enable us to construct a two‐mode network: a project network and a contributor network. The article demonstrates that the structure of these networks is associated with project success and that there is a positive association between project closeness centrality and project success. This suggests the existence of both direct and indirect project knowledge spillovers. We find no evidence for any association between contributor closeness centrality and project success, suggesting that contributor spillovers play a lesser role in project success.     

Accountants as “new guard dogs” of capitalism: Stereotype or research agenda?

Drawing inspiration from the theses of the regulation school, Gerard Hanlon analyses the socialisation process in the “big six”. For accountants are, according to him, the new “controllers” of “a process of flexible accumulation”, one that goes hand in hand with a heightened international division of labour. Unfortunately, his research site remains too limited to confirm—or disconfirm—his ambitious hypotheses. Moreover, the transposition of neo-marxist theories leads him to underestimate the whole work of construction of social credibility of accounting knowledge, as well as the complex play of interaction—and not only of opposition—between these “multinational service conglomerates” and the local or national dignitaries who continue to represent the core of the field of practice.     

Rethinking knowledge: ‘Islamization’ and the future

The Islamization of knowledge debate is central to Muslim futures, focusing on the nature of Muslim identity, modernity and ways of thinking about present and future Muslim reality. The debate, however, has become interwoven with factors that have marginalized Muslim identity—both for participants and observers. This article views Islamization as a civilizational project of rethinking, taking the Qur'an as the frame of reference. Institutional and conceptual approaches are analysed. The development of new disciplines of knowledge within Islamization is seen as having three parameters—an emphasis on holism, the centrality of risk and uncertainty, and acknowledgment of ignorance. Although Islamization involves critique of western civilization, it may seem rejectionist, but synthesis is the aim. The Islamization discourse is at present mainly theoretical; practice requires time and effort.     

“Unfunded liabilities” and uncertain fiscal financing

A rational expectations framework is developed to study the consequences of alternative means to resolve the “unfunded liabilities” problem—unsustainable exponential growth in federal Social Security, Medicare, and Medicaid spending with no plan to finance it. Resolution requires specifying a probability distribution for how and when monetary and fiscal policies will change as the economy evolves through the 21st century. Beliefs based on that distribution determine the existence of and the nature of equilibrium. We consider policies that in expectation combine reaching a fiscal limit, some distorting taxation, modest inflation, and some reneging on the government's promised transfers. In the equilibrium, inflation-targeting monetary policy cannot successfully anchor expected inflation. Expectational effects are always present, but need not have a large impacts on inflation and interest rates in the short and medium runs.     

Temporal aggregation and risk–return relation

The function form of a linear intertemporal relation between risk and return is suggested by Merton's [1973. Econometrica 41, 867–887] analytical work for instantaneous returns, whereas empirical studies have examined the nature of this relation using temporally aggregated data, i.e., daily, monthly, quarterly, or even yearly returns. Our paper carefully examines the temporal aggregation effect on the validity of the linear specification of the risk–return relation at discrete horizons, and on its implications on the reliability of the resulting inference about the risk–return relation based on different observation intervals. Surprisingly, we show that, based on the standard Heston's [1993. Review of Financial Studies 6, 327–343] dynamics, the linear relation between risk and return will not be distorted by the temporal aggregation at all. Neither will the sign of this relation be flipped by the temporal aggregation, even at the yearly horizon. This finding excludes the temporal aggregation issue as a potential source for the conflicting empirical evidence about the risk–return relation in the earlier studies.     

“Holier-than-thou” perception bias among professional accountants: A cross-cultural study

Theoretical conceptions of culture in accounting research are controversial, ranging from highly deterministic, quantified and componential perspectives (such as Hosfstede's five dimensional model) to those that suggest continual changes in cultural values brought about by forces of acculturation. This paper makes a contribution to cross-cultural accounting research by examining the influence of competing theoretical perspectives of culture and acculturation on “holier-than-thou” perception bias. “Holier-than-thou” perception bias leads to individuals perceiving themselves as acting more ethically than comparable others when confronted with ethically uncertain work-related behaviours. This study contributes to cross-cultural accounting research by surveying Australian and Indian professional accountants from big four accounting firms. We firstly seek to establish the prevalence of “holier-than-thou” perception bias in both cultural settings. Secondly, we examine the differential and competing influences of culture and acculturation on perceptions of accountants from the two countries on measures of this bias. Data was collected through a survey questionnaire administered to samples of senior accountants from the big accounting firms in Australia and India. The questionnaire comprised an auditor-client conflict and two whistle-blowing scenarios and used two questions to measure the magnitude of the bias. The results show that “holier-than-thou” perception bias exists among accountants within each of the two countries. However, the magnitude of the bias was not significant between the countries. The results support the theory of acculturation in big accounting firms. Our findings have implications for accounting research where the presence of “holier-than-thou” perception bias needs to be considered in cases where respondents are questioned on socially sensitive issues. The findings may be useful to accounting researchers, managers of multinational enterprises in general, and big-four accounting firms in particular. Our conceptual framework applied in this study is innovative and provides a template for assessing current controversies in cross-cultural accounting research.     

The interbank market after the financial turmoil: Squeezing liquidity in a “lemons market” or asking liquidity “on tap”

After August 2007 the plumbing system that supplied banks with wholesale funding, the interbank market, failed because toxic assets obstructed the pipes. Banks were forced to squeeze liquidity in a “lemons market” or to ask for liquidity “on tap” from central banks. This paper disentangles the two components of the 3-month Euribor–Eonia swap spread, credit and liquidity risk and then evaluates the decomposition. The main finding is that credit risk increased before the key events of the crisis, while liquidity risk was mainly responsible for the subsequent increases in the Euribor spread and then reacted to the systemic responses of the central banks, especially in October 2008. Moreover, the level of the spread between May 2009 and February 2010 was influenced mainly by credit risk, suggesting that European banks were still in a “lemons market” and relied on liquidity “on tap” even before sovereign debt crisis unfolded in Europe.     

“Continuous” budgeting: Reconciling budget flexibility with budgetary control

This paper explores the role of budgeting in the context of the more flexible modes of management required in conditions of uncertainty. It contributes to the growing literature on the tensions between the need to meet specified financial targets, as expressed in budgets, and the need for more flexible and innovative forms of managing prompted by heightened market volatility and rapid rates of technological change. Drawing on case study evidence, the paper introduces the notion of “continuous budgeting” to highlight the ways in which one organization sought to reconcile these potentially conflicting objectives. By integrating different uses of budgeting with other management controls, the processes of “continuous budgeting” encouraged managers to use their discretion in operational matters when confronted by unexpected events. Consequently, it enabled managers to prioritise, as necessary, the revision of plans and reallocation of resources in order to meet wider strategic organizational objectives. As well as empowering managers, “continuous budgeting” also imposed strict accountabilities to ensure that managers remained committed to achieving their own and the organization’s financial targets. Thus far from being an obstacle, budgeting contributed effectively to both the flexibility and the financial discipline required for effective strategy implementation.     

Interpretation and application of “new” and “complex” international financial reporting standards in Fiji: Implications for convergence of accounting standards

This study extends prior research on accounting judgment and decision making research by examining the effects of ‘new’ and ‘complex’ accounting standards on judgments of professional accountants. It examines whether there are differences in judgments of professional accountants in Fiji when interpreting and applying selected International Financial Reporting Standards (IFRSs). A significant within-country difference in judgments of professional accountants has serious implications for convergence of accounting standards. The results show that interpretation and application of accounting standards are affected by complexity of the accounting standard and professional accountant's familiarity with the standard. The study also finds strong support for an interactive effect of familiarity with the accounting standards and complexity in accounting standards on judgments of professional accountants. Furthermore, the results show that differences in judgments exist between the Big 4 and non-Big 4 professional accountants when provided with new accounting standards that require complex judgments. The results of this study are of interest to stakeholders at a time when IFRSs are increasingly being adopted throughout the world and standard setters are struggling to promote compliance with those standards.     

“Extended Black” term structure models

This paper examines “Extended Black” term structure models (EBTSM), which are multi-factor extensions of the one-factor Black model (Black, F., 1995. Interest rates as options. Journal of Finance 50, 1371-1376). EBTSM are not affected by the admissibility restrictions that plague canonical affine models. EBTSM encompass quadratic models, but unlike in quadratic models bond yields are sufficient statistics to infer the latent factors driving the short interest rate. EBTSM are amenable to econometric estimation despite the need to solve bond pricing equations through finite difference numerical methods. Estimation through the Iterated Extended Kalman filter reveals that a two-factor EBTSM fit well the observed cross section and time series of Japanese Government bond yields. A three-factor EBTSM is also proposed.     

“Hot Hands” in bond funds

We investigate persistence in the relative performance of 3549 bond mutual funds from 1990 to 2003. We show that bond funds that display strong (weak) performance over a past period continue to do so in future periods. The out-of-sample difference in risk-adjusted return between the top and bottom decile of funds ranked on past alpha exceeds 3.5 percent per year. We demonstrate that a strategy based on past fund returns earns an economically and statistically significant abnormal return, suggesting that bond fund investors can exploit the observed persistence. Our results are robust to a wide range of model specifications and bootstrapped test statistics.     

The two limits debates: “Limits to Growth” and climate change

In this article we compare the current debate about global warming with the earlier discourse of Limits to Growth (LtG) of the 1970s. We are especially interested in the similarities of and differences between the two cases and therefore compare the policy challenges and lessons to be drawn. While the two debates differ on important issues, they share a technocratic orientation to public policy, and susceptibility to similar pitfalls. In both debates alarming scenarios about future catastrophes play an important role. We suggest that climate change policy discourse needs to focus more closely on the social, economic, and political dimensions of climate change, as opposed to its excessive emphasis on emission reduction targets. We also argue that an excessive faith in the market mechanisms to supply global warming mitigation technologies is problematic. In this respect, we provide a reality check regarding the political implications of emission targets and timetables and suggest how policy issues can be moved forward.     

Obstacles to a global banking system: “Old Europe” versus “New Europe”

“Old Europe” – the developed nations of continental Europe – averages only about 15% foreign bank ownership, whereas “New Europe” – the transition nations of Eastern Europe – averages about 70%. Similar findings hold elsewhere in the world – developed nations tend to have much lower foreign bank ownership shares than developing nations. We examine the causes of the differences within Europe with an eye toward more general conclusions. Our findings suggest that the low foreign bank shares in “Old Europe” – and perhaps developed nations more generally – may primarily result from net comparative disadvantages for foreign banks and relatively high implicit government entry barriers. The high foreign penetration in “New Europe” – and perhaps developing nations more generally – may be due to net comparative advantages for foreign banks and low government entry barriers, particularly in nations that reduced their state bank ownership.     

“When you make manager, we put a big mountain in front of you”: An ethnography of managers in a Big 4 Accounting Firm

Previous studies of the socialization of trainee accountants put emphasis on how disciplinary power mechanisms shape their professional identities. Literature on the ongoing growth and commercialization of the Big 4 Accounting Firms suggests that senior employees, and especially partners, have to be understood as entrepreneurially minded agents. These two bodies of knowledge provide the theoretical vantage point for our empirical analysis of the “missing link” between trainee and partner – the manager. Based on an ethnographic study of a Big 4 Firm (pseudonym Sky Accounting), we suggest understanding the career step of the manager as a rite of passage that has two effects: first, managers experience that their previous identity is destabilized; and second, our study shows how a set of new practices (performing, playing games and politicking) shape the identity of managers, enabling them to navigate the complex organizational network of a Big 4 Firm. We conclude our paper with a discussion of power effects of the rite of passage, how it shapes the identity of managers, and the practice of managerial work in a Big 4 Accounting Firm.     

From Accounting to “Forecounting”*

Using Ross Skinner's 1995 CA Magazine article, “Judgment in Jeopardy", as a stepping stone, we revisit the meaning of professional judgment in accounting in light of developments in standard setting, financial markets, and business operations that have taken place over the past two decades. We argue that it is time to change the view that accountants' professional judgment is the application of accounting‐based knowledge and experience in the selection of an appropriate accounting method. Accountants now face a standard‐setting context that emphasizes the estimation of future cash flows as well as new business and financial realities. This context implies that, in exercising their professional judgment to choose between forecast alternatives, accountants must rely on knowledge and experience from other disciplines (even though this is not well integrated into accounting). Hence, accounting must evolve from its traditional stewardship role to the new role of “forecount‐ing” (the estimation of future cash flows). The implications as well as the challenges of that evolution are discussed.     

The “price puzzle” reconsidered

A large literature has employed structural vector autoregressive (SVAR) models to investigate the empirical effects of U.S. monetary policy. Many of these models regularly produce a “price puzzle”—a rise in the aggregate price level in response to a contractionary innovation to monetary policy—unless commodity prices are included. Conventional wisdom maintains that commodity prices resolve the price puzzle because they contain information that helps the Federal Reserve forecast inflation. I examine a number of plausible alternative indicator variables and find little correlation between an ability to forecast inflation and an ability to resolve the price puzzle. Additionally, a sub-sample investigation reveals that evidence of a price puzzle is associated primarily with the 1959-1979 sample period, and that most indicators—including commodity prices—cannot resolve the puzzle over this period.     

Does the “Zurich consensus” provide grounds for cautious optimism?

It is now clear that the so-called “Washington consensus”, the obsession with markets and the studied refusal to engage with global problems, is dead. The month of November 2008 may be seen by future generations as a turning point in human civilisation. While the Club of Rome has been warning for decades of the consequences of unsustainable growth, organisations like the World Economic Forum and the International Energy Agency have until recently supported the old market-oriented approach that assumed economic growth would solve all our problems. Now the financial crisis has exploded that myth and triggered rethinking of basic assumptions. A new consensus is emerging that recognises biophysical limits and the interlocking social, economic and environmental challenges we face. This provides grounds for cautious optimism that we may be entering a period of social learning which will allow human civilisation to survive.