The North American Industry Classification System and Its Implications for Accounting Research*

Industry classification is an important component of the methodological infrastructure of accounting research. Researchers have generally used the Standard Industrial Classification (SIC) system for assigning firms to industries. In 1999, the major statistical agencies of Canada, Mexico, and the United States began implementing the North American Industry Classification System (NAICS). The new scheme changes industry classification by introducing production as the basis for grouping firms, creating 358 new industries, extensively rearranging SIC categories, and establishing uniformity across all NAFTA nations. We examine the implications of the change for accounting research. We first assess NAICS's effectiveness in forming industry groups. Following Guenther and Rosman 1994, we use financial ratio variances to measure intra‐industry homogeneity and find that NAICS offers some improvement over the SIC system in defining manufacturing, transportation, and service industries. We also evaluate whether NAICS might have an impact on empirical research by reproducing part of Lang and Lundholm's 1996 study of information‐transfer and industry effects. Using SIC delineations, they focus on whether industry conditions or the level of competition is the main source of uncertainty resolved by earnings announcements. Across all levels of aggregation, we find inferences are similar using either SIC or NAICS. How‐ever, we also observe that the regression coefficients in Lang and Lundholm's model show smaller intra‐industry dispersion for NAICS, relative to SIC, definitions. Overall, the results suggest that NAICS definitions lead to more cohesive industries. Because of this, researchers may encounter some differences in using NAICS‐industry definitions, rather than SIC, but these will depend on research design and industry composition of the sample.     

A macro model of change in specialty and spatial distribution of physicians in Canada, 1971-1981.

Most studies on physician distribution have examined static relationships involving the influence of such factors as socio-economic status. This study employs a causal model to study change in physician ratios (general practitioners and family physicians, and specialists) between 1971 and 1981 as a function of change in hospital bed ratios, population size, age distribution, educational attainment of the population, population "native", owner-occupied dwellings, and geographic proximity to the nearest metropolitan area, using physician data for 189 Canadian census divisions. The results, derived from LISREL VI analyses, indicate that specialists experienced increases in their supply in higher socio-economic status areas and in those areas losing general practitioners and family physicians (from 1971 to 1981). General practitioners and family physicians appear to have moved into areas with a relatively low percentage of owner-occupied dwellings and areas where a large percentage of the population is "native". Both groups of physicians appear to have increased in areas where there were increases in hospital facilities over the decade. The study confirms the known association between the two physician groups; that is, general practitioners and family physicians increased in areas gaining specialists and specialists increased in areas where considerable decreases in general practitioners and family physicians were occurring. Findings are discussed in terms of implications for physician manpower planning.     

Determinants of Transactional Internet Banking

The decision of credit unions in the United States to adopt transactional web-based services is consistent with profit-maximization behavior. Credit unions adopt transactional internet banking services when they provide a higher proportion of consumer loans and when there is increased competition from other financial institutions. They adopt transactional internet banking to attract new customers. The larger the credit union the higher the probability of adoption of transactional internet banking. The probability of adoption of transactional banking is directly related to credit unions’ efficiency and indirectly related to loan delinquencies. We also find that the probability of credit unions offering transactional internet banking is positively related to the percentage of the young population in the counties where credit unions are located.     

Stock price impact of diversity in investor beliefs

I re-examine the association between diverse investor beliefs and stock prices within the context of an imperfect competition model. The relationship is ambiguous because of several different effects of a change in diversity in investor beliefs. This has implications for empirical design and explains why 40 years of evidence on this association is inconclusive.     

The Predictive Ability of Direct Method Cash Flow Information

This research examines the predictive ability of direct method cash flow information for firms that use the direct method in their cash flow statements. We use cross sectional and pooled time series regressions to predict operating cash flow data and assess relative predictive ability. Principal findings are: (1) past period direct method cash flow data predict future operating cash flow better than indirect method cash flow data; (2) past period direct method gross operating cash flows predict future net operating cash flow better than past period net operating cash flow; (3) measurement error exists in estimates of direct method operating cash flows from other financial statement data; (4) past operating cash flows predict future operating cash flows better than earnings and accruals.     

Entry, reforms, complementarity and performance: A tale of two Indian manufacturing sectors

In this paper, we use plant-level data from two Indian industries, namely, electrical machinery and textiles, to examine the empirical relationship between structural reforms like abandonment of entry restrictions to the product market, competition and firm-level productivity and efficiency. These industries have faced different sets of policies since Independence but both were restricted in the adoption of technology and in the development of optimal scales of production. They also belonged to the first set of industries that benefited from the liberalization process started in the 1980s. Our results suggest that both the industries have improved their efficiency and scales of operation by the turn of the century. However, the process of adjustment seems to have been worked out more fully for electrical machinery. We also find evidence of spatial fragmentation of the market as late as 2000–2001. Gains in labour productivity were much more evident in states that either have a strong history of industrial activity or those that have experienced significant improvements in business environment since 1991.     

Optimal wage contracts under asymmetric information and moral hazard when investment decisions are delegated

I derive an optimal wage contract when risky investment decisions are delegated by riskaverse owners/investors to risk-neutral agents. The owners/investors do not know the probability distribution over the returns of any investment made by an agent. They know only the mean and the variance, and the upper and lower bounds of the return realizations of the different positive net present value (NPV) investment opportunities that can be discovered by their agents. They observe only the returns realized at the end of the period. Moral hazard with respect to investments made by agents, who are protected by limited liability, is also possible: an agent can falsely claim to have invested in one type of positive NPV investment opportunity and invest in another, or the agent can falsely claim to have invested in a positive NPV investment and invest in a negative NPV investment. I show that an optimal wage contract is simple under such conditions of severe asymmetric information and moral hazard. (JEL G20, G31)