Spending Down Assets to Maximise the Pension: Identifying and Exploring the Ethical Issues

This article explores the ethical issues associated with accounting practitioners providing financial planning advice to clients about spending down or consuming assets for the primary purpose of satisfying age-pension eligibility. I t may seem that there is nothing wrong with this activity but a deeper analysis suggests that it may be unethical. This article employs a broad framework that may be applied to any situation having ethical implications.     

Initial Public Offerings and Underwriter Reputation

This paper examined the returns earned by subscribing to initial public offerings of equity (IPOs). Rock (1986) suggests that IPO returns are required by uninformed investors as compensation for the risk of trading against superior information. We show that IPOs with more informed investor capital require higher returns. The marketing underwriter's reputation reveals the expected level of “informed” activity. Prestigious underwriters are associated with lower risk offerings. With less risk there is less incentive to acquire information and fewer informed investors. Consequently, prestigious underwriters are associated with IPOs that have lower returns.     

THE DETERMINANTS OF JAPANESE LOCAL-BENEFIT SEEKING

This paper examines the determinants of the allocation of Japan's central government spending across its prefectures. Using the framework developed by Atlas et al. (American Economic Review, 85: 3, June 1995, 624–629 ), the paper examines whether over-represented Japanese prefectures receive larger real per capita transfers than under-represented prefectures. A broad concern of the paper is whether institutions matter. Per capita representation of prefectures, party affiliation, and intra-party characteristics are found to be determinants of Japan's central government transfers. The results suggest that institutions do matter. ( JEL H3, H5, H6, H7)     

The Information Content of Tax Expense for Firms Reporting Losses

We investigate whether management's decision regarding the recognition of the valuation allowance (VA) for deferred tax assets provides incremental information about the persistence of accounting losses. We introduce a classification scheme that assigns loss firm‐years into three categories based on whether management appears to have recognized a material change in the VA, and whether or not the firm has positive taxable income (e.g., a net operating loss). The results of our study show that our tax categories contain information about the persistence of accounting losses over the following three years beyond variables previously identified to predict loss persistence. This incremental information is consistent with management using private information about the firm's future prospects in setting the VA. Finally, we find that investors’ pricing of the VA varies with the saliency of the tax signal and the information environment of the firm.     

The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Public Care Aversion from Bequest Motives

The “annuity puzzle,” conveying the apparently low interest of retirees in longevity insurance, is central to household finance. Two possible explanations are “public care aversion” (PCA), retiree aversion to simultaneously running out of wealth and being in need of long‐term care, and an intentional bequest motive. To disentangle the relative importance of PCA and bequest motive, we estimate a structural model of the retirement phase using a novel survey instrument that includes hypothetical questions. We identify PCA as very significant and find bequest motives that spread deep into the middle class. Our results highlight potential interest in annuities that make allowance for long‐term care expenses.     

Symposium on Public Policy Issues in Finance

The thesis of this symposium, organized by James Bicksler, was that while finance theory will surely inform practitioners, it seems appropriate to pay some attention to the opposite flow: practitioners can inform theory. Contributors include a distinguished group of practitioners with extensive backgrounds in economics, and economists with extensive public policy experience: Martin Feldstein, Robert Glauber, David Mullins, and Steven Wallman. Their topics range from privatizing social security, to managing market crashes, to the regulatory agency cost problem, to regulatory constraints in a technologically advanced world.     

Detecting long‐run relationships in regional house prices in the UK

Recent developments in the analysis of cointegration in the presence of asymmetric adjustment are extended and applied to data on regional house prices in the UK. This extension is found to have a dramatic impact upon the results derived. In contrast to recent studies employing standard methods, allowance for the possibility of asymmetric behaviour results in the detection of a large number of long‐run relationships between house prices in different regions. A consistent pattern of asymmetric adjustment is observed, with reversion to equilibrium occurring more rapidly (slowly) when house prices in the South of England decrease (increase) relative to other regions. While the results derived support the existence of a ripple effect underlying the observed movements in regional house prices, the extent of cointegration uncovered casts doubt upon the recently proposed notion of weak segmentation in the UK housing market.     

FISCAL POLICY TIED TO THE MAST: WHAT HAS GRAMM-RUDMAN WROUGHT?

Gramm-Rudman was an historic attempt to apply rules of self-restraint to the fiscal process. This paper analyzes the logic of the Gramm-Rudman approach from economic, legal, and budgetary perspectives. Although the U.S. Supreme Court ruled that the law was unconstitutional, Gramm-Rudman did aid in deficit reduction. The features that led to its success were its careful design and construction, which could not he duplicated by a constitutional amendment.