ATTRACTING FOREIGN PARTICIPATION IN ASIAN LOCAL CURRENCY BOND MARKETS: THE CASE OF THE ASIAN BOND FUND 2 INITIATIVE

The Asian Bond Fund 2 (ABF2) is a $US2bn initiative by a group of central banks in Asia and the Pacific. To promote local currency government bond markets, the fund has been investing in 8 such markets in the region. These markets have made impressive strides since the fund's inception in 2005. The improvements may be traced in large part to overcoming a number of market impediments, including barriers to cross‐border investment. The ABF2 project has played an important catalytic role in market reforms aimed at removing these impediments. However, while the government bond markets have come of age, the corporate bond markets have remained immature. To develop, the immature markets would likely require the benefits of further opening up to regional issuance and investment flows.     

The effects of line-of-business reporting on competition in oligopoly settings*

Abstract. This study considers the welfare effects of line-of-business (LOB) reporting by firms operating in imperfectly competitive markets. The analysis is based on a two-period model in which a multisegment firm, labeled the incumbent, operates as a monopolist in two markets in the first period and then competes against an entrant in each of the two markets in the second period. The incumbent obtains private information in the first period. LOB reporting fully reveals that information to the entrants; aggregate reporting only partially reveals the incumbent's information. The second-period consequences on firms and consumers parallel results previously available from the information-sharing literature. These results serve to explain why some firms opposed the imposition of LOB reporting by accounting rule-making bodies. The incumbent may distort first-period production in an attempt to influence entrant beliefs. However, such distortions lower the incumbent's expected first-period profit and result in no gains in the second period. Nonetheless, in equilibrium, these distortions cannot be avoided unless the entrants observe the incumbent's first-period production or prices, suggesting a role for nonfinancial disclosures in accounting reports. Résumé. Les auteurs se penchent sur l'effet «protecteur» de la communication d'informations relatives au secteur d'activité par les entreprises qui exercent leurs activités sur des marchés imparfaitement concurrentiels. L'analyse est fondée sur un modèle comportant deux périodes, dans lequel une entreprise oeuvrant dans plusieurs secteurs d'activité-désignée sous l'appellation d'entreprise installée—exerce un monopole dans deux marchés au cours de la première période et doit ensuite livrer concurrence à un nouveau venu dans chacun des deux marchés au cours de la seconde période. L'entreprise installée obtient de l'information privilégiée au cours de la première période. L'information sectorielle livre intégralement cette information aux nouveaux venus, mais l'information consolidée ne révèle qu'une partie de l'information dont dispose l'entreprise installée. Les résultats de la seconde période pour les entreprises et les consommateurs s'apparentent à ceux qui ont été exposés jusqu'à maintenant dans les écrits relatifs au partage d'informations. Ces résultats viennent expliquer pourquoi certaines entreprises se sont opposées à ce que les organismes de réglementation comptable fassent de la présentation de l'information sectorielle une obligation. L'entreprise installée peut «biaiser» l'information relative à la première période dans l'intention d'influer sur les convictions des nouveaux venus. Ces distorsions diminueront cependant le profit espéré par l'entreprise installée au cours de la première période et se traduiront par des gains nuls au cours de la seconde période. Néanmoins, en situation d'équilibre, ces distorsions ne peuvent être évitées, à moins que les nouveaux venus n'observent la production ou les prix de l'entreprise installée au cours de la première période, ce qui permet de croire que la présentation d'informations non financières dans les rapports comptables a un rôle à jouer.     

On the Use of Naive Expectations of Earnings per Share as Experimental Benchmarks*

Both martingale and submartingale processes have been used as experimental benchmarks for corporate earnings forecasts or expectations in a large number of studies. This paper investigates the relative accuracy of forecasts from these two processes for a sample of Australian'firms. Submartingale models incorporating drift factors estimated over a large number of past observations consistently outperformed those using fewer observations, while the martingale model always outperformed the submartingale with drift factors estimaied over less than six prior earnings changes. The relative superiority of the martingale versus the best submartingale models used depended on whether a quadratic or linear error metric was deemed appropriate.     

DO FEDERAL DEFICITS REALLY MATTER?

This paper reviews competing views regarding interest rates and other economic effects of federal deficits. It discusses the findings of several empirical studies that have analyzed these relationships. The main points ofthe paper are that: (a) the con-cept of the deficit is ambiguous because not all deficits have the same economic effects, and (b) by slightly modifying existing studies, one is able to produce empirical evidence showing that deficits or debt do indeed raise interest rates and otherwise affect economic activity in ways consistent with the conven-tional view.     

The Economic Impact of the Federal Credit Union Usury Ceiling

This study measures the impact of the Federal credit union usury ceiling on consumer credit availability and loan rates. When binding, the ceiling keeps loan rates low, but it reduces credit union lending. There is also evidence that a binding loan rate ceiling affects the competitiveness of credit unions in the market for deposits. Although the Federal Credit Union Act specifically mandates federally chartered credit unions to be a source of low cost consumer credit and to promote thriftiness, it is not at all clear that the intent of the Act is served by a binding usury ceiling.     

Assessing the Information Content of Mark-to-Market Accounting with Mixed Attributes: The Case of Cash Flow Hedges

We examine how outsiders rationally interpret a reported loss on derivatives when the application of mark‐to‐market accounting to cash flow hedges creates a mixed attribute problem. We find that because of the mixed attribute problem, the information content of mark‐to‐market accounting is related to the information content of historical cost accounting in a very specific way. This relationship allows us to identify the circumstances under which mark‐to‐market accounting facilitates and when it detracts from the objective of providing an early warning of potential financial distress. We show that the reporting of an impending derivative loss by a distressed firm can actually lead outsiders to infer that the firm is in a better financial position than what they would have inferred under the silence associated with historical cost accounting. Without the mixed attribute problem, mark‐to‐market accounting would always yield more accurate assessments of the firm's financial position.