Accounting Reforms in China: Cultural Constraints on Implementation and Development

There is considerable theory and evidence to suggest that culture is an important environmental variable influencing the development of accounting systems internationally. According to the Hofstede (1980) and Gray (1988) cultural models, China's accounting development and practice should be in the cluster that supports statutory control, uniform practices, a conservative measurement approach and secrecy in disclosure. A uniform and rigid system of financial reporting has been practised for decades in the People's Republic of China under the centrally controlled economy. The accounting reforms launched since the 1980s aim to establish a new framework for regulating financial reporting which is adaptable to China's recently emerged socialist market economy. The adoption of accounting standards in the later phases of the reforms marks a dramatic turning point in China's accounting history towards a more international Anglo-Saxon orientation in financial reporting. Based on an analysis of the authority for accounting systems, the accounting profession and accounting measurement and disclosure in China, it is argued that this development will be constrained by the influence of China's culture and its accounting subculture. While financial reporting will be governed by accounting standards, their development and enforcement will remain a governmental and legalistic function. Accountants will continue to rely heavily on detailed technical rules. This mixed orientation will constitute China's unique national identity in terms of its accounting and financial reporting system.     

Corporate failure in the UK: An examination of corporate governance reforms

In the context of major corporate collapses, executive compensation, board network, gender diversity and oversight committees have all received attention in a package of corporate governance (CG) reforms that were recently issued in the UK. This paper examines whether these reforms of CG can influence the likelihood of corporate failure (CF). It also investigates how efficient they are when CF approaches. After controlling for variables that prior research shows to be related to CF, we find that CF is less likely when a firm is characterized by a lower executive compensation, larger size of the board's social network, and smaller degree of the board's managerial network. However, board gender diversity and independence of oversight committees do not reduce the likelihood of CF. We further observe that the explanatory power of these CG variables is significant but relatively decreased as the time to CF closes. This implies that despite the capability of these variables to render early warning alerts of CF, they are less helpful (efficient) as failure becomes closer. Our results remain robust after a battery of sensitivity tests and addressing potential endogeneity problems. Collectively, the evidence provided by our paper should be of interest to the UK's regulatory bodies (Financial Reporting Council) and legislators (the UK's Parliament), since it shows the practical implications of the UK's CG Code and other governance regulations on reducing future corporate collapses. This paper provides timely evidence-based insights to major recent structural reforms aiming at proposing remedies to CG problems in the UK.     

Board diversity reforms: Do they matter for EU bank performance?

We examine the impact of governance reforms related to board diversity on the performance of European Union banks. Using a difference‐in‐difference approach, we document that reforms increase bank stock returns and their volatility within the first 3 years after their enactment. The type of reform matters, with quotas increasing return volatility. The effectiveness of reforms depends on a country's institutional environment. The impact of reforms on return volatility is found to be beneficial in countries more open to diversity, with common law system and with greater economic freedom. Finally, reforms play a bigger role in banks that have ex ante less heterogeneous boards.     

Continental European accounting model and accounting modernization in Germany

Classification techniques based on one or few dimensions are widely used in research studies and textbooks to explain and predict the development of accounting systems internationally. However, their usefulness in international accounting has been limited in today's globalized world. For example, in the context of the EU, IFRS are required for consolidated accounting, while national accounting systems continue to be the dominant system for unconsolidated accounting in many countries. Using Germany as a case study, the objective of this paper is to examine whether Germany can still be classified within the Continental European model of accounting following the Act to Modernize Accounting Law (Bilanzrechts-modernisierungsgesetz — BilMoG), which was promulgated on May 29, 2009. This Act introduced some major reforms to the German Commercial Code (Handelsgesetzbuch — HGB), such as removing the close connection to tax rules and introducing new recognition and valuation regulations, which changed traditional principles of orderly accounting (Grundsätze ordnungsmäßiger Buchführung). As a result, the current German approach of financial reporting separates Germany from the traditional Continental European model of accounting and moves it somewhere on a spectrum between the traditional Continental European model of accounting and the Anglo-American model of accounting.     

Voidable preference reform: a New Zealand perspective on shifting standards and goalposts

While there is consensus that some form of avoiding power is required in the context of a bankruptcy or company liquidation, there is little agreement on the means to implement a voidable preference regime. The New Zealand experience of the past eight years illustrates the inherent difficulties in designing a workable voidable preference regime. The New Zealand Companies Act 1993 replaced the debtor's intention with a test premised on the overall effect of the transaction with an exception for transactions in the ordinary course of business. The ordinary course of business exception became the most litigated and controversial aspect of the 1993 reforms and recently the government has announced its intention to abandon the ordinary course safe harbour in the pending round of insolvency reform. The paper examines the origins of the 1993 reforms and offers an explanation for the failure of the effects based regime. The New Zealand regime placed too much power in the hands of the liquidator with the result that creditors bore the cost and burden of justifying why the transaction should be saved. Although Parliament enacted the effects based regime with a view to promoting better equality of treatment amongst creditors the regime failed because it achieved too much equality. Copyright © 2003 John Wiley & Sons, Ltd.     

Internationalization and employability: the role of intercultural experiences in the development of transferable skills

Policy-makers are increasingly advocating market-based reforms to increase choices for service users and therefore to drive improvement through competition. This article assesses this approach in a hospital trust where there is plenty of scope for patients to choose providers and so for reforms based on a market logic to work. The market had very little impact on the hospital's activities, but demands from the Department of Health and the strategic health authority for the hospital to become more market-oriented were creating the potential for significant dysfunctional consequences.     

Critical reflections on Laughlin's middle range research approach: Language not mysterious?

Professor Richard Laughlin is renowned for applying critical insights from the German philosopher, Jurgen Habermas. His middle range research approach has explored many accounting problems such as public–private partnerships, health care reforms and how accounting impacts cultural issues. Laughlin's work re-conceptualises accountability in terms of cultural analysis, language and systems theory. Users of his work may encounter issues associated with: (1) understanding how to judge assertoric statements concerning various truth claims; (2) exploring the dichotomy between the secular and sacred; and (3) examining whether language simply designates meaning or opens us to interpretive new pathways.     

在进一步解放思想中深化改革

纵观世界历史,人类社会的进步总是由思想解放引领的。从思想的形成过程和人类自身的认知规律来看,人的思想总是会受到“内因”和“外因”的束缚,因此,需要打破阻碍或束缚人们准确认识客观现实的各种藩篱,使思想和实际相符合,使主观和客观相一致。中国四十年的改革开放史就是一部思想解放史。因为实现了“三个确立”,并且正在冲破“三个思维定势”,我们得以为中国经济起飞和持续发展提供不竭动力。进入新时代,解放思想必须实实在在地落到解决深层次问题上,需重点关注三个方面：一是推动中国理论体系发挥重大作用,二是完善符合中国实践的公平正义保障体系,三是发展构建命运共同体需要的新国际交往思维。     

Will Practice-Based Commissioning in the English NHS Resolve the Problems Experienced by GP Fundholding?

Labour's new approach to primary health care, based around the policy of practice-based commissioning, has considerable potential for learning from the general practitioner fundholding reforms put in place by the Conservative governments of the 1990s. However, practice-based commissioning seems to repeat many of the same problems as the earlier policy. Despite the increased scope for GPs to make a significant difference to the shape of local health economies because of the incentives and opportunities offered by payment by results and patient choice reforms, the potential problems of practice-based commissioning threaten the reform's viability and long-term success.     

Valuing Companies with Cash‐Flow@Risk

The classic DCF approach to capital budgeting—the one that MBA students in the world's top business schools have been taught for the last 30 years—begins with the assumption that the corporate investment decision is “independent of” the financing decision. That is, the value of a given investment opportunity should not be affected by how a company is financed, whether mainly with debt or with equity. A corollary of this capital structure “irrelevance” proposition says that a company's investment decision should also not be influenced by its risk management policy—by whether a company hedges its various price exposures or chooses to leave them unhedged. In this article, the authors—one of whom is the CFO of the French high‐tech firm Gemalto—propose a practical alternative to DCF that is based on a concept they call “cash‐flow@risk.” Implementation of the concept involves dividing expected future cash flow into two components: a low‐risk part, or “certainty equivalent,” and a high‐risk part. The two cash flow streams are discounted at different rates (corresponding to debt and equity) when estimating their value. The concept of cash‐flow@risk derives directly from, and is fully consistent with, the concept of economic capital that was developed by Robert Merton and Andre Perold in the early 1990s and that has become the basis of Value at Risk (or VaR) capital allocation systems now used at most financial institutions. But because the approach in this article focuses on the volatility of operating cash flows instead of asset values, the authors argue that an internal capital allocation system based on cash‐flow@risk is likely to be much more suitable than VaR for industrial companies.     

Pro-poor indirect tax reforms,with an application to Mexico

This paper proposes a methodology for testing for whether tax reforms are pro-poor. This is done by extending stochastic dominance techniques to identify tax reforms that will be deemed absolutely or relatively pro-poor by a wide spectrum of poverty analysts. The statistical properties of the various estimators are also derived in order to make the method implementable using survey data. The methodology is used to assess the pro-poorness of possible reforms to Mexico’s indirect tax system. This leads to the identification of several possible pro-poor tax reforms in that country. It also shows how the pro-poorness of a tax reform depends on one’s conception of poverty as well as on the revenue and efficiency impact of the reform.     

Corporate governance reforms around the world and cross-border acquisitions

This paper provides comprehensive, detailed documentation of major corporate governance reforms (CGRs) undertaken by 26 advanced and emerging economies. We investigate whether these reforms have altered investor protection (IP) and impacted corporate investments. Specifically, we estimate the CGRs' impacts on foreign acquirers' tendency to pick better performing firms in emerging markets. We argue the cherry picking is partly due to emerging countries' weaker IP than acquirer countries', predicting a positive relation between the degree of cherry picking and the gap in the strength of IP. Thus, if the CGRs strengthen IP, the gap will decrease (increase) following a CGR in a target's (acquirer's) country, moderating (intensifying) the cherry picking tendency. This is what we find when we estimate difference-in-differences in cherry picking before and after a CGR. These results not only demonstrate the important impacts the CGRs had, but also imply the IP gap between capital exporting and importing countries distorts firm-level allocation of foreign capital inflows and reduces the benefits of globalization.     

Financial System Reform in Kazakhstan from 1993 to 2006 and Its Socioeconomic Effects

Voluminous theoretical and empirical literature examines the relation between financial-sector development and economic growth. However, previous studies have largely ignored progress in former Soviet Central Asian republics engaged in transition from socialist command economies to market economies. This paper seeks to fill this gap in the literature by considering Kazakhstan's experience with financial-sector liberalization and the socioeconomic effects of these reforms. We summarize the prereform economic circumstances prevailing in Kazakhstan, outline the major characteristics of its postcommunist financial system, and provide a detailed chronicle of financial-sector reform measures from 1993 to 2006. The paper focuses on the evolution of Kazakhstan's banking structure, policies adopted by the National Bank of Kazakhstan, and the approach taken to the privatization of state banks, as well as the steps taken to improve bank accounting standards and banking supervision. The development path of nonbank financial institutions and capital markets is also examined. We consider the outcomes of financial-sector reforms and their effects on the economy as a whole.     

Conflicting norms: Impact of the Model Law on Chapter 11's Global Restructuring Role

The Model Law's emphasis on the debtor's center of main interest (COMI) as the proper jurisdiction for the main insolvency proceeding is at odds with the traditional United States approach of applying Chapter 11 to restructure foreign entities with no significant US connection. This paper explores whether adoption of the Model Law has made Chapter 11 less available for debtors with a foreign COMI. The Model Law has had no direct impact on the US courts approach to foreign‐entity Chapter 11 cases. However, shortly after the Model Law's adoption, several reported US decisions added the pendency of a foreign insolvency proceeding as a factor supporting discretionary abstention or dismissal of foreign Chapter 11 cases. While those decisions do not refer to the Model Law, it is possible that the Model Law's COMI‐centric approach influenced this new trend.     

Pension Wealth Uncertainty

Using a representative sample of Italian investors, we measure the uncertainty of social security benefits by eliciting for each individual the subjective distribution of the replacement rate as a summary indicator of pension uncertainty. We find that pension uncertainty varies across individuals in a way that is consistent with what one would expect a priori, given different information sets and pension schemes. In particular, individuals who are a long way from retirement, and thus face more career uncertainty, report more subjective pension uncertainty. Since expectations reveal information about people's understanding of pension reforms, our findings suggest that they should also be an important determinant of how people respond to reforms.     

What Asset Prices Should Be Targeted by a Central Bank?

This paper investigates the monetary policy design for restoring equilibrium determinacy. Our interests are whether a central bank should respond to asset price fluctuations, and if so, what asset prices should be targeted. We show that a monetary policy response to the price of a productive tangible asset (capital price) is helpful for equilibrium determinacy, while that to the price of an intangible asset that reflects a firm's profit (share prices) is a source of equilibrium indeterminacy. This result comes from the two assets' prices moving in opposite directions in response to a permanent increase in inflation.     

Too big to fail: Measures,remedies, and consequences for efficiency and stability*

This paper evaluates whether reform efforts addressing “too big to fail” actually enhance the stability of the financial system, and whether trade‐offs exist between stability and efficiency. We also present and discuss various measures of bank size and complexity since such measures are essential for implementing appropriate corrective remedies. As we will show, there are no unambiguous measures of size or complexity that can fully capture a bank's contribution to systemic risk. Their effects on efficiency are also impossible to capture with certainty. While we recognize the need for additional research and empirical evidence, we do identify weaknesses and strengths of proposed and implemented reforms that could have consequences for bank stability and efficiency.     

On the Determinants of Optimism in Financial Analyst Earnings Forecasts: The Effect of the Market's Ability to Adjust for the Bias

This paper examines whether the documented bias in analyst earnings forecasts is intentional by examining whether it is related to the market's ability to adjust for this bias. For intentional bias to exist it is not enough for analysts to face incentives but rather, analysts should also be willing to respond to these incentives. As the market's ability to adjust for the bias increases, its market effects decrease while analyst reputation costs increase reducing analyst willingness to bias their forecasts. The paper utilizes a firm‐specific design that allows for both the bias component of the forecast error and the market's ability to adjust for the bias to be computed at the firm level. Results suggest that even though forecast error is positive in the latter part of the period under review reflecting overall analyst pessimism, the bias embedded in the forecasts is optimistic throughout the period. More importantly, I find that analyst forecast bias is decreasing in the market's ability to adjust for it. This result provides further evidence that analysts knowingly bias their forecasts and provides support for the existence of reporting bias, in particular. Thus, the evidence provides justification for recent regulatory efforts to increase the objectivity of analyst research reports.     

The Fed's Communications: Suggestions for Improvement

The chief economist of Berenberg Capital Markets proposes three broad ways of improving the Fed's communications: (1) establish a more systematic approach to achieving its dual mandate; (2) clarify the proper role of monetary policy in achieving those objectives by distinguishing what is within the scope of monetary policy from what is clearly beyond it; and (3) articulate the Fed's goals and role in achieving macro‐prudential risk management and financial stability. With these three ends in view, the author begins by urging FOMC members to refrain from making public comments immediately following government data releases and, when making public speeches and statements, to relate their comments on the economy to the Fed's dual mandate. The author also suggests three modifications of the Fed's official Policy Statement following FOMC meetings. First, each statement should start with an assessment of monetary policy and its consistency with achieving the Fed's statutory mandate, rather than the Fed's assessments of the economy and its subsectors with which such statements now begin. Second, the Fed should communicate separate explicit risk assessments of inflation and of the prospects for employment and the economy. (The Fed's current practice of sometimes dropping the risk assessments from statements and replacing them with nuanced language—for example, on changes in inflation and inflationary expectations—can be a source of confusion.) Third, all statements should discuss as clearly as possible the Fed's strategy for its balance sheet and unwind policy. The Fed's quarterly Summary of Economic Projections (SEPs) should be redesigned to include FOMC estimates of forecast uncertainties and what they imply for monetary policy, and such alternative forecasts should be presented in place of the current central tendency and range of forecasts. The redesigned SEPs should be (1) based on a rigorous Fed assessment of expected monetary policy under different situations and contingency planning, and (2) as transparent as possible about the Fed's economic and inflation outlooks, the uncertainties in forecasting, and the conditionality of monetary policy. An illustration is provided of the alternative SEPs that would replace the current “dot plots” and include the Fed's forecasts of nominal GDP, calculated confidence intervals around the FOMC's median forecasts, and three separate forecasts of the Fed's perceived appropriate Fed funds rate. Finally, the author views the “optimal solution” as a more systematic approach in which the Fed publishes a single forecast based on a model consistent with its dual mandate that shows how the appropriate Fed funds rate path would be expected to vary under different economic and inflation outcomes. Such an approach, by thus mapping likely monetary policy responses to alternative plausible economic and inflation outcomes, would increase the Fed's accountability as well as its transparency.     

Tobin's q,agency conflicts,and differential wealth effects of international joint ventures

This article examines announcement effects of 240 international joint ventures (IJVs) undertaken by US firms to ascertain their impact on shareholders' wealth. The objective is to ascertain whether the mixed results of announcement effects reported in the literature can be explained. Theory suggests that IJVs would result in differential stock price reactions due to firm-specific characteristics. Therefore, it is hypothesized that IJVs would elicit a positive stock price reaction, on average. Also, it is hypothesized that this reaction should be greater for high Tobin's q firms and for low free cash flow firms. Empirical analysis reveals that firm-specific characteristics do influence announcement effects and suggests that these factors may explain the mixed announcement effects documented in the literature.