Accounting Quality,Liquidity Risk,and Post‐Earnings‐Announcement Drift

Recent microstructure research finds that liquidity risk, in particular its information component, plays an important role in explaining the post‐earnings‐announcement drift (PEAD). We decompose liquidity risk into an accounting‐associated component and a nonaccounting‐associated component and examine their relative importance in explaining PEAD. Our research is motivated by recent findings that liquidity risk is a systematic risk and earnings quality is negatively associated with liquidity risk. We find that the accounting‐associated component is more strongly related to PEAD returns than is its nonaccounting‐associated counterpart. Further analyses reveal that the relation between accounting‐associated liquidity risk and PEAD returns is weaker for firms with greater analyst following. We also find that in a significant market downturn, the relation between accounting‐associated liquidity risk and PEAD returns becomes more pronounced. Our study is the first to document a liquidity risk‐based role of accounting quality in explaining the PEAD phenomenon. It parses out the PEAD risk premia associated with accounting versus nonaccounting sources and, by so doing, sheds light on the role of accounting quality in shaping the liquidity risk‐PEAD returns relation.     

Invisible enemy: The health impact of ozone

China has exerted great efforts in the past decades to fight against particulate matters and has achieved initial results, but ozone pollution has increased significantly. Using a unique diagnostic data of a peninsula city in China, this study evaluates the health effect of ozone pollution on emergency room admission and medical expenditure. We present strong evidence that ozone has a significant negative impact on health. Specifically, one standard deviation increase in ozone pollution will result in an additional 3.30, 2.25, and 4.94 weekly emergency room admissions in respiratory, ophthalmology, and internal medicine. Our analysis of medical expenditure implies that one standard deviation increase of ozone pollution generates a 5.89 million yuan increase of annual medical expenditure for a representative city. We further show that land wind, sunny weather, and dense roads significantly moderate the adverse health effects of ozone. Our findings offer a timely reminder for policymakers to pay attention to “invisible” ozone pollution while managing particulate pollution.     

Industrialization,indoor and ambient air quality,and elderly mental health

The health risks from indoor and ambient air pollution create a considerable burden to global economic development and health, especially in economies within an aging society. Previous research has established the adverse effects of air pollution on health. However, most studies do not focus on the simultaneous effect of indoor and ambient air pollution nor its health risks to the older population. This study examines the impact of exposure to both indoor and ambient air pollution for the same individuals over time on mental health by using a nationally representative longitudinal survey for middle-aged and elderly individuals in China. We find that both indoor and ambient air pollution have an adverse effect on elderly mental health and significantly increases the likelihood of having depressive symptoms. We provide evidence that the effect of indoor and ambient air pollution is associated more with less educated and females.     

The human cost of China's industrial growth

This paper examines whether industrial growth during economic development is associated with a high workplace fatality rate by using panel data from China. Controlling for provincial and year fixed effects, our estimations show that provincial industrial growth has a positive impact on the workplace fatality rate. We also find that both the growth of industrial labor productivity and the growth of industrial employment have an impact on workplace fatalities. Our instrumental variable fixed effects estimations, which control for simultaneity, show an even greater effect of industrial growth on the fatality rate. Our empirical findings suggest that the Chinese government ought to reconsider its growth-centered policies to save lives.     

Productivity Gains from Offshore Outsourcing: Evidence from the Chinese Manufacturing Industry

Using the Cobb–Douglas production function and vertical specialization share, the present paper measures the productivity spillover effects of offshore outsourcing in the Chinese manufacturing industry. We examine different production factors and the degree of openness by dividing the Chinese manufacturing industry into five major categories: capital‐intensive business, technological‐intensive business, labor‐intensive business, open business and non‐open business. The results show that offshore outsourcing is positively associated with productivity in the Chinese manufacturing industry as a whole, but less so in labor‐intensive industries and more in capital‐intensive industries. Moreover, the positive impact of outsourcing on productivity is slightly higher in open industries than in non‐open industries. These results shed light on the differential spillover effects of offshore outsourcing on productivity. Our findings suggest that outsourcing structure is important to China's long‐run competitive advantage. China's policy‐makers should encourage further offshore capital‐intensive and technology‐intensive activities and focus more on outward‐oriented offshore businesses.     

Pollution havens,endogenous environmental policy,and foreign direct investment

In an increasingly integrated world economy, countries may have greater incentives to weaken environmental policy as disguised protection intended to give a competitive edge to local firms. This may generate pollution havens as firms relocate in response to different environmental policies. Foreign direct investment (FDI) weakens profit‐shifting policy considerations while increasing environmental damages but, at the same time, may provide external benefits. We derive conditions under which the FDI‐recipient country has an incentive to manipulate its environmental standard to prevent or attract FDI, potentially eliminating or creating pollution havens, in addition to examining the impact of FDI on the equilibrium state of the environment.     

REGIONAL TIES AND DISCRIMINATION: POLITICAL CHANGE,ECONOMIC CRISIS,AND JOB DISPLACEMENTS IN SOUTH KOREA, 1997–99

Probing into the incidence of job displacements during the 1997–99 recession period, this study offers theoretically grounded micro‐causal explanations for regional ties and regional discrimination in South Korea. Our statistical analysis reveals the significant impact of a worker's birth region (the basis of regional ties and discrimination) on the layoff process. Native Kyongsang workers are found to have faced higher rates of layoff in Seoul‐Kyongki regional firms than native Jolla workers during the recession period. The Kyongsang–Jolla layoff rate gap is mainly due to differential treatment rather than a difference in observable characteristics. The findings suggest that the problem of regional ties and regional discrimination is more deep‐rooted and widespread in South Korea than previously reported.     

Family size,labor supply,and job prestige: Evidence from three decennial censuses in China

This study investigates the relationship between family size and parents’ labor market performance, measured by labor supply and occupational prestige scores, based on three census waves in 1990, 2000, and 2010. To address the endogeneity problem of family size, we use the indicator of twins at first birth as an instrumental variable. Our results suggest that in nuclear households, family size affects the labor market performance only of mothers, not of fathers, with the negative effects fading and gradually disappearing over time. More specifically, an increase in family size decreases female labor supply in the 1990 wave, leads to lower prestige scores among working mothers in the 2000 wave, and has no impact on labor supply or occupational prestige scores in the 2010 wave. Our subsample analysis indicates that the negative effects of family size are more severe for parents of households with all children under seven years old and for husbands or wives with lower education level than that of their partners. In addition, we find that the negative effects of family size on parental labor market outcomes are not observed in extended households, especially when no grandparents are aged 65 years or older.     

Air pollution and brain drain: Evidence from college graduates in China

This paper provides one of the few evidence about migration responses among talents to air pollution. Specifically, we investigate the impact of PM_2.5 concentration on job location decisions of Chinese college graduates at the beginning of their professional careers. The results indicate that a 10-unit increase in PM_2.5 concentration raises college graduates' probability to leave their current city by 10% point. We also find larger impacts on graduates from elite colleges and less polluted hometowns. Our empirical results are consistent with a simple model in which the location choice of college graduates depends on their wage payment and air pollution. Our findings supplement existent literature in documenting important ways in which air pollution may associate with the loss of highly-educated talents.     

Accounting Variables,Deception, and a Bag of Words: Assessing the Tools of Fraud Detection

We develop a data‐generated tool for distinguishing between fraudulent and truthful reports based on the language used in the management discussion and analysis section of annual and interim reports. Using this method, we are able to assign a probability of truth to each report which is then shown to be an effective indicator of fraud. Our work goes beyond the development of a tool alone, however, by conducting an extensive comparison of our probability‐of‐truth measure with eight alternative detection tools representing both quantitative and language‐based approaches. Comparisons are made across a variety of samples and show that our language‐based approach can be effective in both cross‐sectional and time‐series settings. It is useful both in distinguishing between fraudulent and truthful firms and in identifying fraudulent reports from a series of reports issued by a single firm. This second setting is one in which accounting‐based detection tools have frequently struggled. We establish that, not only is our probability‐of‐truth measure significantly associated with fraud, so too is the change in this measure from a firm's previous reports. Prior reports may serve an important benchmarking role in using language‐based tools to identify fraud.     

Does Gender Inequality Reduce Growth in Sub‐Saharan African and Arab Countries?*

Abstract: This paper uses 1974 to 2001 panel data for 31 sub‐Saharan African and 10 Arab countries and Arellano–Bond estimations to empirically assess the impact on growth of an important indicator associated with MDG 3; namely the ratio of 15–24‐year‐old literate females to males. Our findings indicate that gender inequalities in literacy have a statistically significant negative effect that is robust to changes in the specification. In addition, it seems that gender inequality has a stronger effect on growth in Arab countries. Interestingly, we find that the interaction between openness to trade and gender inequality has a positive impact. This result suggests that trade‐induced growth may be accompanied by greater gender inequalities.     

Evidence of Industry Scale Effects on Audit Hours,Billing Rates,and Pricing

Using a proprietary data set consisting of all private firm audit engagements in 2000 from one Big 4 firm in Belgium, we investigate (i) whether audit office industry scale is associated with a reduction of total, partner, and staff audit hours and thus with efficiency gains triggered by organizational learning from servicing more clients in an industry and (ii) whether the extent of efficiency pass‐on from the auditor to its clients depends on the audit firm's market power. We find that auditor office industry scale is associated with efficiency gains and a reduction of the variable costs (i.e., fewer total audit hours, partner hours, and staff hours), ceteris paribus. Our results also suggest that, on average, realized efficiencies are entirely passed on, as evidenced by a nonsignificant effect of auditor industry scale on the auditor's billing rate. Furthermore, we find that the extent of the efficiency pass‐on decreases with the market power of the audit firm in the industry market segment as we document a higher billing rate for auditors with high market power (versus low market power). In addition, we find that the lower audit hours associated with auditor industry scale do not compromise audit quality.     

Hedge Fund Intervention and Accounting Conservatism

Hedge fund intervention has been associated with many positive corporate changes and is an important vehicle for informed shareholder monitoring. Effective monitoring has also been positively associated with accounting conservatism. Building upon these prior results, we predict an increase in accounting conservatism after hedge fund intervention. We use a large sample of hedge fund activist events and identify control firms with similar likelihoods of being targeted using the propensity score matching method to apply difference‐in‐difference tests. We find that when hedge fund activists have relatively large ownership and sufficient time to exert their monitoring power, target firms experience significant increases in conditional conservatism. CFO turnovers, upward/lateral auditor switches, and improvements in audit committee independence after intervention are accompanied by greater increases in conditional conservatism. Finally, we find greater increases in conditional conservatism when there is a lack of monitoring by dedicated institutional investors before the intervention. Our study suggests that hedge fund activists improve accounting monitoring tools and thus adds important new evidence on the effectiveness of shareholder monitoring on accounting practices.     

Overcoming the Egyptian cotton crisis in the interwar period: the role of irrigation,drainage, new seeds,and access to credit†

After experiencing a period of spectacular growth during the late nineteenth century, the Egyptian cotton sector underwent a phase of stagnation, which was followed by a gradual and steady increase in output during the interwar period. Drawing on a new panel dataset at the province–year level, this article explores the determinants of the upturn in cotton output, running a horserace between credit, seed technology, and infrastructure. In order to address endogeneity concerns, an instrumental variable approach is adopted, using a modified version of Bartik's shift‐share instrumental variable. Our results provide supporting evidence that peasants switched to a lower‐yielding cotton variety as a response to changes in relative price. Moreover, our production function estimates show that two key factors had a positive impact on output growth: credit availability and the adoption of new cotton varieties.     

The Global Financial Crisis and Sub‐Saharan Africa: The Effects of Slowing Private Capital Inflows on Growth*

Abstract: This paper uses the bias‐corrected least‐squares dummy variable (LSDV) estimator to examine the relationship between economic growth and four different types of private capital inflows (cross‐border bank lending, foreign direct investment (FDI), bonds flows and portfolio equity flows) on a sample of 15 selected sub‐Saharan African countries over the period 1980–2008. Our results show that FDI and cross‐border bank lending exert a significant and positive impact on sub‐Saharan Africa's growth, whereas portfolio equity flows and bonds flows have no growth impact. Our estimates suggest that a drop by 10 per cent in FDI inflows may lead to a 3 per cent decrease of income per capita growth in sub‐Saharan Africa, and a 10 per cent decrease in cross‐border bank lending may reduce growth by up to 1.5 per cent. Therefore, the global financial crisis is likely to have an important effect on sub‐Saharan Africa's growth through the private capital inflows channel.     

Business Life Cycle and Capital Structure: Evidence from Chinese Manufacturing Firms

This paper uses a panel data‐fixed effect approach and data collected from Chinese public manufacturing firms between 1999 and 2011 to investigate the impacts of business life cycle stages on capital structure. We find that cash flow patterns capture more information on business life cycle stages than firm age and have a stronger impact on capital structure decision‐making. We also find that the adjustment speed of capital structure varies significantly across life cycle stages and that non‐sequential transitions over life cycle stages play an important role in the determination of capital structure. Our study indicates that it is important for policy‐makers to ensure that products and financial markets are well‐balanced.     

Budget Structure and Pollution Control： A Cross-country Analysis and Implications for China

In the published literature, the differences in environmental performance across countries are typically explained using the Environmental Kuznets Curve. The Environmental Kuznets Curve states that pollution initially increases with economic growth. Once GDP per capita reaches a certain level, the relationship reverses. In the present paper, we provide an alternative hypothesis, where budget structure plays an important role in explaining the variations in pollution across the world.＂ the lower the business-related taxes as a share of total tax revenue, the higher the property tax in total tax revenue and the higher the ratio of public health expenditure in total expenditure, then the stronger the incentive of pollution control and the lower the pollution level. Our empirical findings reveal that the budget structure does have an important impact on pollution control. The policy implication of this research is that effective control of environmental pollution requires changes in tax structure and expenditure assignment. This research has important policy implications for China ＂s tax system reform and pollution control efforts.     

An Empirical Investigation of Audit Fees,Nonaudit Fees,and Audit Committees*

This study examines the association between audit committee characteristics and the ratio of nonaudit service (NAS) fees to audit fees, using data gathered under the Securities and Exchange Commission's (SEC's) fee disclosure rules. Issues related to NAS fees have been of concern to practitioners, regulators, and academics for a number of years. Prior research suggests that audit committees possessing certain characteristics are important participants in the process of managing the client‐auditor relationship. We hypothesize that audit committees that are independent and active financial monitors have incentives to limit NAS fees (relative to audit fees) paid to incumbent auditors, in an effort to enhance auditor independence in either appearance or fact. Our analysis using a sample of 538 firms indicates that audit committees comprised solely of independent directors meeting at least four times annually are significantly and negatively associated with the NAS fee ratio. This evidence is consistent with audit committee members perceiving a high level of NAS fees in a negative light and taking actions to decrease the NAS fee ratio.     

Productivity Measurement in Gambling: Plant‐level Evidence from the United Kingdom

Although gambling is one of the fastest‐growing service industries, there have been no studies of total factor productivity (TFP) in this sector. We attempt to fill this gap using establishment‐level data from the United Kingdom. We also discuss key measurement issues in calculating gambling productivity and estimate labor and TFP equations, based on a stochastic frontier production function framework, focusing in particular on the impact of information technology on productivity. Our preliminary results suggest that the production function models fit well, generating plausible elasticity estimates. We find consistent evidence that productivity increased following major reforms to gambling taxation in 2001. Our findings yield limited evidence of regional variations in efficiency. Another key preliminary result is that internet operations appear to be associated with higher relative efficiency.     

The impact of diabetes insurance mandates on infant health

Among the factors thought to contribute to lagging improvements in infant health in recent years are increasing obesity and diabetes prevalence among women of childbearing age. This article uses a difference‐in‐difference‐in‐difference empirical strategy to investigate the impact of mandated insurance coverage for diabetes on adverse pregnancy outcomes. Among educated women, who have high rates of coverage through private insurance that is subject to insurance mandates, diabetes mandates are associated with a reduction in low birth weight and premature birth prevalence. These gains are concentrated among older women and are larger for African‐Americans. There is a weaker effect on the prevalence of high birth weight, potentially because of the deleterious effects of an increased probability of pregnancy weight gain in excess of 35 pounds among diabetic women in states with mandates.