“Informing” technologies and the World Bank

The current study examines how the World Bank uses an assemblage of information generation and reporting practices, bounded by accounting/financial expertises, to attempt to influence the practices associated with administering education in Latin America. Starting from the premise that these “informing” technologies make the objects of governance knowable in terms of accounting and financial expertises, we consider how accounting practices embedded within lending agreements enable, translate and regulate behaviour. Focusing on the institutional field(s) of basic education, the study offers an in-depth analysis of 15 World Bank loan agreements from across the region, plus 25 interviews with field participants from a single Latin American country. We examine how the World Bank lending agreements install a variety of informing technologies across a network of agents in Latin America. We propose that such agreements can be viewed as technologies of governance in that they diffuse financial technologies to distant fields, re-structure the habitus of these fields, and serve to reaffirm the expertise of the Bank within these fields. In this way, the World Bank increases its legitimacy with other potential borrower countries and ensures its continuing influence.     

An “American Dream” theory of corporate executive Fraud

In this paper, we first describe a “Broken Trust” theory that was introduced by Albrecht el al. [Albrecht, W. S., Albrecht, C. C., & Albrecht, C. O. (2004). Fraud and corporate executives: Agency, Stewardship and Broken Trust. Journal of Forensic Accounting, 5, 109–130] to explain corporate executive Fraud. The Broken Trust theory is primarily based on an “Agency” theory from economic literature and a “Stewardship” theory from psychology literature. We next describe an “American Dream” theory from sociology literature to complement Albrecht el al.'s (2004) Broken Trust theory. Like the Broken Trust theory, the American Dream theory relates to a “Fraud Triangle” concept to explain corporate executive Fraud. Finally, we provide some anecdotal evidence from recent high profile corporate executive Fraud to explore the American Dream theory. We conclude our thoughts on corporate executive Fraud from a teaching perspective.     

What UIP tests on extreme samples reveal about the missing variable

In their UIP regressions, Huisman et al. (1998. Extreme support for uncovered interest parity, Journal for International Money and Finance 17, 211–228.) focus on extreme forward premia and find much higher coefficients. We show that, for such results, the expectation signal needs to be thicker-tailed than the missing variable. Transaction costs may produce the right sort of bias. It is (i) bounded (i.e. it has no tails at all), (ii) wide (i.e. it may generate betas below 1/2) and (iii) U-distributed, which makes an “extreme” sample quite effective. We derive theoretical and numerical results in the direction of what Huisman et al. observe. We also tighten Fama's moment conditions.     

Has the global financial crisis produced a New World Order?

Described by Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, as the worst financial crisis in global history, the economic impact of the global financial crisis would have been much worse had it not been for Asia (excluding Japan). In broad terms, the crisis has accelerated the secular emergence of Asia, whereas the US recovery is weak by historical standards and problems in Europe continue. What accounts for this two-tier pattern of world growth? Does this juxtaposition signal a permanent re-ordering of world business - in other words, a New World Order?     

Contending voices: futures, culture and development

This essay discusses some aspects of the World Commission on Culture and Development (WCCD), a major UN initiative. It describes, in particular, the fate of a proposal to establish a General Agreement on Culture and Development (GACD) similar to other international agreements, but which takes a ‘bottom-up’ rather than a ‘top-down’ approach to negotiation. The proposed GACD would contribute to the resolution of culture-related crises and promote new directions for development based on cultural diversity and shared global values. The aim of the essay is: to indicate the aims and progress of the Commission; to consider how cultural futures-oriented thinking might assist in the conceptualization of a GACD; and to reflect on how different voices within the world community affect the progress of such initiatives and proposals.     

Static hedging and pricing American options

This paper utilizes the static hedge portfolio (SHP) approach of Derman et al. [Derman, E., Ergener, D., Kani, I., 1995. Static options replication. Journal of Derivatives 2, 78–95] and Carr et al. [Carr, P., Ellis, K., Gupta, V., 1998. Static hedging of exotic options. Journal of Finance 53, 1165–1190] to price and hedge American options under the Black-Scholes (1973) model and the constant elasticity of variance (CEV) model of Cox [Cox, J., 1975. Notes on option pricing I: Constant elasticity of variance diffusion. Working Paper, Stanford University]. The static hedge portfolio of an American option is formulated by applying the value-matching and smooth-pasting conditions on the early exercise boundary. The results indicate that the numerical efficiency of our static hedge portfolio approach is comparable to some recent advanced numerical methods such as Broadie and Detemple [Broadie, M., Detemple, J., 1996. American option valuation: New bounds, approximations, and a comparison of existing methods. Review of Financial Studies 9, 1211–1250] binomial Black-Scholes method with Richardson extrapolation (BBSR). The accuracy of the SHP method for the calculation of deltas and gammas is especially notable. Moreover, when the stock price changes, the recalculation of the prices and hedge ratios of the American options under the SHP method is quick because there is no need to solve the static hedge portfolio again. Finally, our static hedging approach also provides an intuitive derivation of the early exercise boundary near expiration.     

Guest Editorial

This is an empirical and quantitative study of the validity of four kinds of distal explanatory factors in risk perception. In an initial study, personality constructs (Five Factor Model, Myers-Briggs Indicator of Jungian constructs and risk attitudes) were related to risk perception data (26 hazards). A relationship was found between emotional stability and risk perception, but none with Jungian constructs. One risk attitude dimension, 'Macho' risk willingness, was (negatively) related to demand for governmental risk mitigation. In a second study with a different sample, indices were constructed to measure the four World Views according to Cultural Theory (CT) as well as Group/Grid dimensions, New Age beliefs and the New Environmental Paradigm (NEP) dimensions of Dunlap et al . Risk perception data were obtained with regard to 37 hazards, both general and personal risk. The respondents were a large representative sample of the Swedish population. Only about 5% of the variance of perceived risk was accounted for by Cultural Theory dimensions, considerably more by New Age beliefs and one of the NEP scales (eco-crisis). In a third study, data from the five Nordic countries were used to analyse the relationships between CT dimensions and risk perception. Only weak relations were found. The results are discussed in relation to other current work on models of risk perception and the question of what should be considered 'strong' evidence for a theory.     

World facts and trends

The following represents a handbook that presents in a compact and usable form a basic selection of those items which may be most relevant to the discussion of facts and trends and their major themes. It is not intended as an exhaustive compilation of such materials, but has similar aims to the first version which was prepared as an internal working document for use in two related conferences: “The place of value in a world of facts”, Nobel Symposium 14, Stockholm, September 1969, “Environment and society in transition: scientific developments: social consequences: policy implications”, International Joint Conference of the American Geographical Society and the World Academy of Art and Science, New York, April–May 1970.     

Earnings quality at initial public offerings

We show that, contrary to popular belief, initial public offering (IPO) firms report more conservatively. We attribute this to the higher quality reporting demanded of public firms by financial statement users and consequentially higher monitoring by auditors, boards, analysts, rating agencies, press, and litigants, and to greater regulatory scrutiny [Ball, R., Shivakumar, L., 2005. Earnings quality in UK private firms: comparative loss recognition timeliness. Journal of Accounting and Economics 39, 83–128]. We also question the evidence of Teoh et al. [1998b. Earnings management and the subsequent market performance of initial public offerings. Journal of Finance 53, 1935–1974] supporting the alternative hypothesis that managers opportunistically inflate earnings to influence IPO pricing. We conjecture that upward-biased estimates of “discretionary” accruals occur in a broad genre of studies on earnings management around similar large transactions and events.     

Financialisation: Constructing shareholder value … for some

Drawing from the theorising of Froud et al. [Froud J, Johal S, Papazian V, Williams K. The temptation of Houston: a case study of financialisation. Critical Perspectives on Accounting 2004;15(6–7):885–909] and Kripner [Krippner G. The financialisation of the American economy. Socio-Economic Review 2005;3:173–208] on financialisation, we explore the activities of New Zealand's largest listed company Telecom (NZ) Ltd. The success narrative produced by Telecom since its privatisation and listing in 1991 is centred on shareholder value. However, its financial reporting practices seem increasingly complicated and difficult to comprehend. Telecom's original off-shore investors reaped considerable returns on their investment and, until recently most investors in Telecom were domiciled outside New Zealand. Its production activities have remained concentrated in New Zealand where it holds a monopoly over an essential part of the country's communication infrastructure. This examination of Telecom's activities and financial reporting adds to the debate about financialisation by questioning the effects of the separation of production and accumulation on those where production is located. It also demonstrates the use of accounting and financial reporting practices to support a success narrative which results in resource transfers to those engaged in accumulation activities to the potential detriment of those involved in, or affected by, the company's production activities.     

Financial instability in Latin America

In this paper I deal with a number of issues related to financial instability in Latin America. I first discuss, from a macroeconomic research perspective, what I believe are some of the most important policy issues faced by the Latin American nations. These include the effectiveness of controls on capital inflows, the effect of exchange rate depreciation on output, and the international transmission of the business cycle. Second, I argue that the economic research agenda on Latin America should not ignore history. In Latin America, more so than in any other region in the world, there has been a self-destructing tendency for repeating history.     

Comment on: “Inflation dynamics with search frictions: A structural econometric analysis” by Krause, Lopez-Salido and Lubik

The implications of search frictions on the inflation dynamics are shown here for the case with wage adjustments typically belonging to the New Keynesian model, not to the Mortensen–Pissarides framework. In that model variant, I identify the role of search frictions by an additional term entering the slope coefficient of the inflation equation. After a numerical exercise, I find results that are in line with those obtained by Krause et al. [2008. Inflation dynamics with search frictions: a structural econometric analysis. Journal of Monetary Economics 55, doi:10.1016/j.jmoneco.2008.05.003.].     

The “new public management” in the 1980s: Variations on a theme

Changes in public sector accounting in a number of OECD countries over the 1980s were central to the rise of the “New Public Management” (NPM) and its associated doctrines of public accountability and organizational best practice. This paper discusses the rise of NPM as an alternative to the tradition of public accountability embodied in progressive-era public administration ideas. It argues that, in spite of allegations of internationalization and the adoption of a new global paradigm in public management, there was considerable variation in the extent to which different OECD countries adopted NPM over the 1980s. It further argues that conventional explanations of the rise of NPM (“Englishness”, party political incumbency, economic performance record and government size) seem hard to sustain even from a relatively brief inspection of such cross-national data as are available, and that an explanation based on initial endowment may give us a different perspective on those changes.     

Extended peer communities and the ascendance of post-normal politics

This paper describes an approach to the operationalisation of extended peer communities that deploys uncertainty, ignorance and indeterminacy, and examines the crucial role of trust. Trust underwrites both the dialogue central to extended peer communities and the functional utility of the knowledge so created, because when “facts are uncertain, values in dispute, stakes high … and the framing of the problem involves politics and values as much as science” (Ravetz J. Knowledge in an uncertain world. New Scientist 1990;127:2) the taken-for-granted trust in ‘normal' science is no longer assured, necessitating the cultivation of trust by other means. It is argued that extended peer communities provide a focus for the ascendant politics of the post-normal realm, in resonance with recently articulated insights into broader social theory.“… we continue to believe in the sciences, but instead of taking in their objectivity, their truth, their coldness, their extraterritoriality … we retain what has always been most interesting about them: their daring, their experimentation, their uncertainty, their warmth, their incongruous blend of hybrids, their crazy ability to reconstitute the social bond. We take away from them only the mystery of their birth and the danger their clandestineness posed to democracy” (Latour B. We have never been modern. Hemel Hempstead (UK): Harvester Wheatsheaf, 1993:142).     

Millennium Project's draft scenarios for the next 1000 years

In cooperation with The Foundation For the Future, The Millennium Project of the American Council for the United Nations University has collected and rated factors that may influence the long-term (1000 years) future of humanity via the “Millennium 3000 Panel” of 100 advanced thinkers around the world. Their judgements have been organized into six first draft scenario sketches, of which three are presented in this paper.     

Searching for opportunities for Sub-Saharan Africa's renewal in the era of globalisation

Sub-Saharan African (SSA) countries rely heavily on donor assistance and international borrowing. The Official Development Assistance (ODA)/GNP ratio in SSA is expected to rise well into the next century. Increases or decreases of ODA, which is known to be the main source of SSA's investment, may depend on the type of global settlement expected to emerge in the post-cold war world. SSA has therefore a stake on the type of globalisation which may frame world economic policy and financial aid to it. Neo-liberal globalisation has no enthusiasm for massive financial transfers. The incipient globalising ideas which emerged from the Rio Summit in 1992 have suggested to increase ODAs in real terms and debt relief to control crushing debt service payments. Agenda 21 has created new and additional facilities formally for increasing donor assistance in the form of financial and investment transfers. The question is whether this new mechanism will make any difference to stem the SSA decline and can “incentivise” the region's renewal or renaissance. This article will focus on how globalisation may be related to increase or decrease of financial transfer to SSA.     

The effect of client management bargaining power, moral reasoning development, and belief in a just world on auditor independence

In two studies, practising auditors' responses to hypothetical audit conflict scenarios were used to test hypotheses that moral reasoning development and belief in a just world influence resistance to client management power. Based on a mixed factorial ANOVA design, results confirmed that auditor independence is interactively determined. Three styles of auditor decision-making emerged: “autonomous”, “accommodating” and “pragmatic”. Autonomous auditors were responsive to personal beliefs, such that those with strong just world beliefs were more likely to resist client management power. Pragmatic auditors were responsive to client management power, irrespective of beliefs. Accommodating auditors responded both to personal beliefs and client management power; they comprised the least resistant group, especially when they believed in an unjust world.     

Psychology, meaning and the challenges of longevity

Humankind has begun to reap one of the most valued harvests of its scientific and technological pursuits: a significant increase in human longevity. We now live longer than ever before, due in large part to advances in medicine and health care that provide those who have the opportunity to afford them a lifespan that for many approaches or exceeds the 100-year mark. It is now within the realm of possibility that people will live lives of 125 years or more within the next century. However, our ability to increase physical longevity may have outstripped our ability to deal individually and socially with these new lives, these new existences that go well beyond what has traditionally been considered a “working life”. How well-prepared are we psychologically to cope with the meaning of a life that extends to as much as 150 years or more? In this new “age of longevity”, what are the challenges for psychology as a resource for humanity in its quest to give definition to the experience of being alive, as well as for managing the affairs of everyday life? Traditional developmental theories in psychology tend to articulate early stages of life in detail, but are generally mute on the matter of later life. Cognitive psychology has been inclined to view longevity as leading to a deterioration of mental faculties due to “aging”. This paper examines the psychological implications of increased lifespans from an optimistic perspective by reviewing current developments in research on cognition, emotion and aging. The review identifies trends in psychology that, if emphasized and strengthened, may lead to improved theoretical frameworks that cast longevity in a positive light, and that identify how people can find meaning and fulfillment throughout their whole lifespan.

“Grow old along with me! The best is yet to be, The last of life for which the first was made.” Robert Browning “Rabbi Ben Ezra”

I first encountered Browning’s works as an undergraduate, and being a pre-engineering student at the time my tendencies toward poetry were stunted to say the best. Few of the great works of literature my teachers compelled me to read at that stage of my life and development made enough of an impact to last beyond the length of the course requiring their reading. Much has changed since then and my interests in literature and what literature has to say that is of value for our lives has deepened. But Browning’s enthusiastic call to join him in aging has always been a fascination. Indeed, what could be more of a contradiction to modern attitudes about becoming elderly than to claim “the best is yet to be”? What can be more of a challenge to how we approach the relationship between being young and being old than to claim that the last of life is “for which the first was meant”? What can the possible rewards of the golden years be that transcend the glorious enthusiasms, unfettered optimisms, and just pure physical conveniences of being young? Or, was Browning simply trying to sucker us all into a fait accompli, the hopeful outcome of which is the envy of the very youth that the aged often envy so much?There is little enough envy of the aged today. I approach these years with great caution, recognizing that how I look upon those who are two decades older than myself will, in turn, condition me to see myself in those years much in the way that I see them now. “Aging” is not something anyone really wants to do. We want to, at best, “grow older”, a perspective that carries with it a more positive spin: growing wiser, growing up, or simply “growing” with all of its new-age connotations of personal enlightenment and becoming. I am not “aging”, I am “becoming at one”.The language we have adopted to talk about the time-course of life, and particularly about the years in the latter third of that course, does much to frame both how we live those years and how we anticipate them in our youth. Our expectations are ones of decline, physical debilitation and mental infirmity. We “retire”, as in withdrawal into seclusion, away from the mainstream of life and into the backwater eddy of inaction. On the shelf.Much of this view has been reinforced by how humanity has approached examining this aspect of its own time course through science. We study aging with an eye to how its effects influence the abilities of those so afflicted to perform or operate compared to those who still have a grasp on their full faculties. And, of course, we find that as people grow older, they do not approach life in the same way as do younger people.Part of our view on life comes from the very way in which science is funded: those interested in the last of life often receive their support from the National Institute on Aging, not the National Institute on The Last of Life for Which the First Was Made. Research agendas often focus on identifying sources of infirmity and potential prostheses, either physical or social, that can ease the lives of the elderly on their way toward achieving the goal of successful aging. All too often, success in aging means imposing relatively few demands on social resources or on the lives of younger people, such as family members. In our “ageist” society, elderliness is not generally equated with status and stature. Less and less, the young “listen” to the old out of deep interest in their lives and their experiences. Wisdom is the providence of the freshly matured and recently educated.The shortcomings of life in the advancing years are many and well-documented in the research literature. Memory spans decrease, information retrieval becomes less reliable, and new information is less readily assimilated. As people become older, they appear to rely more and more on automatic processing of information, quick associations and the like, rather than deliberative and conscious reasoning [1]. For the older mind, intuition is at least moderately preferred over analysis. For example, younger people tend to interpret stories analytically, focusing on details, while older people tend to focus less on a story’s details and more on its “gist” and its underlying significance to things that are important to them [2], and tend to do better at grasping and dealing with information in terms of its holistic meaning [3 and 4].The effects of these differences in information processing between young and old can be seen in practical matters of everyday life, such as decision making and judgment. Johnson [5], for example, found that older adults use simplifying decision strategies more often than younger adults. These strategies, such as noncompensatory rules that consider only the positive or the negative aspects of a decision option but not both, relieve one of the psychological burden of making complex and effortful tradeoffs, at the possible expense of efficiency and accuracy. Chasseigne et al. [6] found that as people age, they become less consistent in their use of information in making judgments and predictions; even reducing the overall information load and demands on memory does little to improve the reliability of their judgments. ¹     

Cross-sectional tests of deterministic volatility functions

We study the cross-sectional performance of option pricing models in which the volatility of the underlying stock is a deterministic function of the stock price and time. For each date in our sample of FTSE 100 index option prices, we fit an implied binomial tree to the panel of all European style options with different strike prices and maturities and then examine how well this model prices a corresponding panel of American style options. We find that the implied binomial tree model performs no better than an ad-hoc procedure of smoothing Black–Scholes implied volatilities across strike prices and maturities. Our cross-sectional results complement the time-series findings of Dumas et al. [J. Finance 53 (1998) 2059].     

On the Myth of “Anglo-Saxon” Financial Accounting

The term “Anglo-Saxon accounting” (ASA) is used by a number of academic writers on the subject of International Accounting to refer to an approach to financial accounting and reporting that is supposedly common to the UK and Ireland, the USA and other English-speaking countries including Canada, Australia, and New Zealand. While most of the writers we cite as using this term are continental Europeans, they also include an Englishman, J. Flower. The term is typically used to imply not just similar conceptual and technical approaches, but also a hegemonic alliance in the international politics of accounting regulation.This article seeks to establish that ASA in this sense is a myth. We do this first by critically examining four putative commonalities that are frequently attributed to the UK and USA approaches to financial accounting and that form the basis of the myth, and second by indicating the unfeasibility of such a hegemonic alliance within the IASC. A myth may have some factual foundations, but belief in it rests also on bases that are non-factual. So it is with ASA. In particular, analysis of the terms “true and fair view” (TFV) and “fair presentation (FP) in accordance with generally accepted accounting principles (GAAP)” shows that, far from their possessing a semantic equivalence that constitutes a commonality between UK and US financial reporting, their interpretation indicates a profound difference between the UK and US approaches. What UK and US financial reporting have historically shared is a micro- and capital market orientation that lends itself to international accounting regulation in a context of global capital markets. But with such an orientation now being generally accepted internationally, the differences between UK and US financial reporting are taking on an increased significance that this article seeks to highlight.