The Benefit of Mean Auditors: The Influence of Social Interaction and the Dark Triad on Unjustified Auditor Trust

Regulators and researchers have expressed concerns that social interaction leads auditors to unjustifiably trust managers, constituting a lack of sufficient professional skepticism. Using both an abstract laboratory experiment and a contextually rich experiment with practicing auditors we predict and find that higher Dark Triad auditors (those with higher levels of the shared core between psychopathy, narcissism, and Machiavellianism) are relatively more resistant to lapses in professional skepticism due to the effects of social interaction. This is likely driven by higher Dark Triad auditors' callousness, lack of empathy, and lack of response to social stimuli. In contrast, while higher social interaction initially increases lower Dark Triad auditors' unjustified trust in managers, this effect reverses in subsequent interactions when lower Dark Triad auditors observe evidence suggesting managers have reported aggressively. These findings add to research on the effect of auditor personality traits, audit-client social interaction, and the interaction of these two variables, and suggest that practitioners and researchers account for the interplay of Dark Triad traits and social interaction and their effect on professional skepticism.     

Measuring the persistence of deviations from purchasing power parity with a fractionally integrated STAR model

Empirically, elements of both fractional long memory and threshold non-linearity are present in the real exchange rates of the G-7 countries against the US, notably in the EU countries. Estimated half lives of deviations from PPP using median unbiased corrections to conventional linear autoregressive models corroborate existing evidence related to the PPP paradox as half lives range from at least four years to an infinite number of years. In contrast, for each EU country, accounting for threshold non-linearity results in estimated half lives that can be less than three years even with the allowance for fractional long memory.     

The effects of internal locus of control on entrepreneurship: the mediating mechanisms of social capital and human capital

This paper proposes the research framework that locus of control enhances entrepreneurship through the mediating mechanisms of increased social capital in interpersonal networks and improved human capital in personal development. We adopted structural equation modeling to examine the research hypothesis. The research participants comprised managers from 14 enterprises in China; a total of 1002 valid questionnaires were collected. The results revealed that social and human capital mediate the effect that internal locus of control exerts on entrepreneurship. This study provides the following research contributions: first, the findings address the gaps in previous studies regarding the effect that a single dimension (i.e. personality traits) produces on entrepreneurship. Second, by employing the social exchange and human capital theories, we integrated interpersonal and individual perspectives into the research framework to explore factors affecting entrepreneurship, identifying that social and human capital are key-mediating mechanisms through which locus of control influences entrepreneurship.     

The dynamics of price discovery for cross-listed shares: Evidence from Australia and New Zealand

This paper studies the dynamics of price discovery for markets with bilateral cross-listings. Using a sample of four Australian stocks cross-listed in New Zealand and five New Zealand stocks cross-listed in Australia for the period January 2002 to December 2007, we assess Hasbrouck (1995) information shares and Grammig et al. (2005) conditional information shares over time. We observe that in both cases the home market is dominant in terms of price discovery. However, when studying price discovery over time, we find that the importance of the Australian market (the larger of the two markets) is increasing for both Australian and New Zealand domiciled firms. Finally, using panel regression analysis, we find that the growth in the importance of the Australian market is positively related to the growth in the size of the firm and negatively related to the size of the percentage spread in the Australian market, implying that as firms grow larger and their cost of trading in Australia declines, the Australian market becomes more informative.     

The Diversification Effects of Initial Public Offerings

Abstract:  A firm's stock becomes publicly tradable through an initial public offering (IPO). This study suggests a portfolio diversification perspective to explore IPOs. We examine whether investors can gain diversification benefits by adding an IPO portfolio to a set of benchmark portfolios sorted by firm size and book-to-market ratio. Using US IPOs from 1980-2002, we find that adding a value-weighted IPO portfolio does lead to a statistically and economically significant enlargement of the investment opportunity set for investors relative to investing solely in a set of benchmark portfolios. Specifically, the Sharpe ratio of the tangency portfolio increases by 5.50% on average after including IPO stocks. Furthermore, IPOs associated with prestigious lead underwriters are the main source of this augmentation of the mean-variance investment opportunity set. Finally, our study implies that issuing IPO exchange traded funds or similar products can provide diversification gains to investors.     

How firms respond to being rated

While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions, we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings, and especially those that face lower‐cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select ‘socially responsible,’ and avoid ‘socially irresponsible,’ companies. We examine how several hundred firms responded to corporate environmental ratings issued by a prominent independent social rating agency, and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance, and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory, institutional theory, and economic theory. Copyright © 2010 John Wiley & Sons, Ltd.     

Disclosure of allegedly illegal corporate activities and information risk

We investigate how the disclosure of allegedly illegal corporate activities such as the backdating of stock option grants affects the “information risk” of accused companies. This research provides evidence about the consequences of this risk change on equity values. We compare the earnings' response coefficients (ERC) for companies charged with backdating before and after it was revealed that these companies allegedly engaged in these activities. Our results show a U-shape pattern in ERC across post-backdating periods, suggesting a temporary decline in information risk. We also estimate the amount of company valuation losses that are based on the changes in the ERC. We find, on average, that a firm suffered approximately $26.2 million in valuation losses for four quarterly earnings announcements in the post-backdating period. Our economic significance analysis suggests that valuation losses related to changes in “information risk” provide some explanations for the subsequent market valuation consequences.     

Turnover among professionals: A longitudinal study of American lawyers

Turnover intentions and actual turnover among lawyers are examined in an attempt to clarify whether common models of turnover can be applied to this professional occupation, which has rarely been examined. Three models are explored in their relation to turnover: personal characteristics, work‐related variables, and nonwork domain variables. The data are based on responses to the National Survey of Career Satisfaction/Dissatisfaction of the American Bar Association, 1984 and 1990. The findings reveal that work‐related variables were the main determinants of turnover intentions, and personal characteristics together with nonwork domain variables were the main determinants of actual turnover. © 1999 John Wiley & Sons, Inc.     

Tourists' perceptions of heritage tourism development in Danish‐Osu,Ghana

This paper examines the tourist perceptions at Danish, Osu‐Ghana within the dark tourism or slavery heritage contexts. Using Cohen's (1979) typology of tourist experience, we differentiate between tourist knowledge of a heritage site relative to socio‐demographic indices. The results indicate that tourists' perception of Danish‐Osu reflect their knowledge of the site in relation to its cultural heritage attributes. In addition, it was found that tourists have dual experiences of the site: those that relate to recreational pursuits of heritage sites and those that ascribe meanings based on their background. The contemporary nature and use of Transatlantic Slave Trade relics for tourism development makes the case of the Danish‐Osu more delicate considering the ethical implications of interpreting the community's past to tourists as the borderlines are unclear. Copyright © 2010 John Wiley & Sons, Ltd.     

HEALTH INSURANCE,FERTILITY, AND THE WANTEDNESS OF PREGNANCIES: EVIDENCE FROM MASSACHUSETTS

Health insurance reform in Massachusetts lowered the cost of both pregnancy (by increased coverage of pregnancy‐related medical events) and pregnancy prevention (by increasing access to reliable contraception). We empirically examine fertility responses and find no overall effect from increased coverage due to the Massachusetts reform. This finding, however, masks substantial heterogeneity. For married women aged 20 to 34—with high latent fertility and pregnancy wantedness—fertility increased by approximately 1%. For unmarried women in the same age range—for whom pregnancies are typically unwanted—fertility declined by 8%. (JEL I13, I18, J13)