A Research Note on the Use and Perceived Usefulness of Analytical Procedures by Australian Auditors

This paper provides Australian evidence on the use and perceived usefulness of analytical procedures (AP) by both Big 6 and non-Big 6 auditors. The following questions are posed in the paper. First, what is the extent of usage of AP? Second, which AP are used most frequently? Third, at what stage of the audit are AP used most frequently? Fourth, how effective are AP? Fifth, do auditors expect more or less use of AP in the future? In the context of these questions comparisons are drawn between Big 6 and non-Big 6 auditors and with two recent overseas studies.     

Neighbors Matter: Causal Community Effects and Stock Market Participation

This paper establishes a causal relation between an individual's decision whether to own stocks and average stock market participation of the individual's community. We instrument for the average ownership of an individual's community with lagged average ownership of the states in which one's nonnative neighbors were born. Combining this instrumental variables approach with controls for individual and community fixed effects, a broad set of time-varying individual and community controls, and state-year effects rules out alternative explanations. To further establish that word-of-mouth communication drives this causal effect, we show that the results are stronger in more sociable communities.     

Insider Trading Restrictions and Analysts' Incentives to Follow Firms

Motivated by extant finance theory predicting that insider trading crowds out private information acquisition by outsiders, we use data for 100 countries for the years 1987–2000 to study whether analyst following in a country increases following restriction of insider trading activities. We document that analyst following increases after initial enforcement of insider trading laws. This increase is concentrated in emerging market countries, but is smaller if the country has previously liberalized its capital market. We also find that analyst following responds less intensely to initial enforcement when a country has a preexisting portfolio of strong investor protections.     

Using Copulas to Model Switching Regimes with an Application to Child Labour*

The copula approach to econometric modelling involves the specification of the separate components of the joint distribution of the random variables of interest: models built for each margin are bound together using a copula function. In this paper, the copula approach is used to construct models for switching regimes. The construct is illustrated by fitting a wage earnings model for child workers in the early 1900s, with regimes governed according to literacy. The results improve on earlier modelling efforts by Poirier and Tobias (2003), finding that a child worker may on average expect a reduction in earnings from being literate.