Are fully independent audit committees really necessary?

Accounting scandals and concerns about the quality of financial statements have led to many calls for improved audit committee effectiveness. Prior research indicates that audit committee independence is positively related to effective oversight of the financial reporting process. Unfortunately, prior research has not provided an answer as to how much independence on the audit committee is enough. This is an important unanswered question because while Section 301 of the Sarbanes-Oxley Act of 2002 (SOX) currently requires all listed companies to maintain an audit committee that is 100% independent there has been much debate regarding easing the SOX requirements for smaller and foreign companies. In this paper we examine whether the regulatory requirements of a completely independent audit committee are necessary to obtain the monitoring benefits related to audit committee independence that have been documented in prior literature. Our results suggest that the benefits of audit committee independence are consistently achieved only when the audit committee is completely independent. These results provide support for the SOX requirement of 100% independent audit committees.     

Toward understanding household preference for consumption characteristics of millet varieties: a case study from western Niger

In this study, we evaluate the preference of consumers in Niger for different tuwo or couscous characteristics using a random utility‐based choice experiment, ordered probit analysis, and tree‐based partitioning. Data were collected through a structured survey administered at four sites. Preferences are estimated for three products (couscous, fermented tuwo, and nonfermented tuwo) made from five pearl millet cutivars. We provide relative valuation for different traits by type of product. Results show that product taste, color, and textural attributes are important, especially for tuwo and couscous. Probit and partitioning results show that taste and color are the first attributes that consumers use to distinguish more preferred millet food products from less preferred millet food products. This should provide some direction for millet breeding programs and food processing of millet.     

推广转基因抗虫棉对次要害虫农药施用的影响分析

本研究的主要目的是分析在转基因抗虫棉有效控制棉花主要害虫(棉铃虫)、减少农药施用之后,可能导致的对棉花次要害虫的影响。通过多年的棉农生产跟踪调查和计量模型分析,研究结果表明,近年来棉农用来控制次要害虫的农药施用量有所增加,应引起有关部门的重视,但它的农药施用量远远小于采用转基因抗虫棉后整体减少施用的农药量;研究还发现,转基因抗虫棉在控制主要害虫农药施用量的减少,不是导致次要害虫农药施用量增加的主要原因,它仅仅能解释次要害虫农药施用增加量的一小部分。     

A Conceptual Framework for Quantitative Text Analysis

Quantitative text analysis refers tothe application of one or more methods for drawingstatistical inferences from text populations. Afterbriefly distinguishing quantitative text analysisfrom linguistics, computational linguistics, andqualitative text analysis, issues raised during the1955 Allerton House Conference are used as a vehiclefor characterizing classical text analysis as aninstrumental-thematic method. Quantitative textanalysis methods are then depicted according to a2 × 3 conceptual framework in which texts areinterpreted either instrumentally (according to theresearcher's conceptual framework) orrepresentationally (according to the texts' sources'perspectives), as well as in which variables arethematic (counts of word/phrase occurrences),semantic (themes within a semantic grammar), ornetwork-related (theme- or relation-positions withina conceptual network). Common methodological errorsassociated with each method are discussed. Thepaper concludes with a delineation of the universeof substantive answers that quantitative text analysisis able to provide to social science researchers.     

How similar is the world in the internet era? A comparison of e‐business in China,Russia, and Sweden

Much has been written about how e‐business can serve as a strong homogenizing influence and essentially make the world into one market. Yet, little research has empirically investigated this question. This study seeks to describe e‐business activity in China, Sweden, and Russia to identify similarities and differences in the portfolios of e‐business applications in these countries. Our results indicate that different e‐business applications are emerging as more prevalent in different countries. © 2006 Wiley Periodicals, Inc.     

East Meets West: A Cross-Cultural Comparison of Charismatic Leadership Among Canadian and Iranian Executives

ABSTRACT This study first develops an empirically based Western charismatic leadership profile. Using confirmatory factor analysis, the profile is compared with a profile of Iranian managers. The results demonstrate that despite major cultural differences in the two countries, there are core similarities in the profiles across the two cultures. The Canadian charismatic profile of vision, tenacity, intellectual challenge, self-sacrifice, and eloquence is substantially confirmed within the Iranian sample. But we also show that Iranian managers' ratings are significantly lower than those of the Canadian managers, indicating potentially different behavioural manifestations. The paper speculates that while the differences are probably due to cultural differences, the similarities may be due to universal intrinsic human desire for morality, autonomy, and achievement.     

Corporate governance and the market impact of the Financial Services Modernization act of 1999 on bank returns and trading volume

Recent deregulation of financial services by the Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act (GLB), places more reliance on corporate governance to oversee the actions of financial institutions. We examine whether corporate governance variables explain bank shareholder reaction to GLB passage. We find that banks with better board oversight react favorably to the GLB and banks with less effective board monitoring react less favorably to the GLB. Banks with lower leverage, lower insider ownership, less board activity, a smaller board, fewer inside directors, and less visibility respond more positively to the GLB. Results indicate investor approval of the legislative effort to increase the role of corporate governance in the banking industry and affirm the importance of effective corporate oversight among financial institutions. The authors thank the reviewers for their insights and suggestions.     

An efficiency wage approach to reconciling the wage curve and the Phillips curve

This study develops an efficiency wage model that generates a wage curve at the regional level and a Phillips curve at the national level, under the assumption that workers' efficiency depends on both regional and aggregate labor market conditions. An equation relating wages to unemployment and lagged wages is derived from the profit-maximizing behavior of firms, and it is demonstrated that the coefficient on lagged wages is less than 1 with regional data but equals 1 with aggregate data. In addition, there is an equilibrium relationship between unemployment and wages at the regional level, but not at the aggregate level.     

Sequential selling mechanisms

Summary In this paper we attempt to formalize the idea that a mechanism that involves multilateral communication between buyers and sellers may be dominated by one that involves simple bilateral communication. To do this we consider the well known problem in which a seller tries to sell a single unit of output to a group ofN buyers who have independently distributed private valuations. Our arguments hinge on two considerations. First, buyers communicate their willingness to negotiate with the seller sequentially, and second, buyers have the option of purchasing the good from some alternative supplier. It is shown that the seller cannot improve upon a procedure in which she offers the good to each buyer in turn at a fixed price. The seller reverts to multilateral communication if possible, only when no buyer is willing to pay the fixed price. In reasonable environments buyers will be too impatient to wait for the outcome of a multilateral negotiation and all communications will be bilateral.In many problems in mechanism design, informed traders have no alternative to participation in the mechanism that is offered by its designer. The best mechanism from the designer's point of view is then the one that is most efficient at extracting informational rents, that is, a simple auction. In a competitive environment it is likely to be costly for buyers to participate in an auction or any other multilateral selling scheme in which the seller must process information from many different buyers because alternative trading opportunities will be disappearing during the time that the seller is collecting this information. Buyers might be willing to participate in an auction, but only if they could be guaranteed that the competition that they face will not eliminate too much of their surplus.At the other extreme to the auction is a simple fixed price selling scheme 1. The seller simply waits until he meets a buyer whose valuation is high enough, given the opportunities that exist in the rest of the market, for him to be willing to pay this price. The seller extracts the minimum of the buyer's informational rents since the price that a buyer pays is independent of his valuation. Yet the seller might like this scheme if adding a second bidder to the process makes it very difficult for him to find a buyer with a valuation high enough to want to participate.In the presence of opportunity costs, the seller faces a trade-off between his ability to extract buyers informational rents and his ability to find buyers who are willing to participate in any competitive process. In practice this trade-off will impose structure on the method that is used to determine a price. In markets where there are auctions, limits are put on buyer participation. In tobacco auctions bids are submitted at a distinct point in time from buyers who are present at that time. In real estate auctions time limits are put on the amount of time the seller will wait before making a decision. These restrictions on participation are presumably endogenously selected by the seller (possibly in competition with other mechanism designers) with this trade-off in mind.On the other hand, markets in which objects appear to trade at a fixed price are rarely so simple. A baker with a fixed supply of fresh bagels is unlikely to collect bids from buyers and award the bagels to the high bidder at the end of the day. Buyers are unlikely to be willing to participate in such a scheme since they can buy fresh bagels from a competitor down the street. Yet despite the fact that bagels sell at a fixed price throughout the day, most bakers are more than willing to let it be known that they will discount price at the end of the day on any bagels that they have not yet sold. Selling used cars presents a similar problem. Each potential buyer for the used car is likely to have inspected a number of alternatives, and is likely to know the prices at which these alternative can be obtained. A seller who suggests that buyers submit a bid, then wait until the seller is sure that no higher offer will be submitted is asking buyers to forgo these alternative opportunities with no gain to themselves. To avoid the rigidity of the pure fixed price scheme most used cars are sold for a fixed price or best offer. These examples suggest that the best selling mechanism may involve a complex interplay between participation and surplus extraction considerations.The purpose of this paper is to provide a simple formalism within which the factors that determine the best contract can be evaluated. We consider the best known environment from the point of view of auction design in which there are a large number of buyers with independent private valuations for a unit of an indivisible commodity that is being sold by a single supplier who acts as the mechanism designer. We modify this standard problem in two critical ways. First, we assume that the seller meets the potential buyers sequentially rather than all at once. Secondly we assume that buyers have a valuable alternative that yields them a sure surplus. This creates a simple bidding cost that is effectively the expected loss in surplus (created by the disappearance of outside alternatives) that the buyer faces during the time that he spends negotiating with the seller.These simple assumptions allow us to calculate the impact of competition and communication costs using completely standard arguments from the mechanism design literature. We are able to show that with these assumptions the seller's expected surplus will be highest if the object is sold according to the following modified fixed price scheme: the seller contacts each of the potential buyers in turn and either offers to negotiate or announces that he no longer wishes to trade. If he offers to negotiate and the buyer agrees, the buyer immediately has the option of trading for sure with the seller at a fixed price set ex ante. If the buyer does not wish to pay this fixed price, he may submit an alternative bid. The seller will then continue to contact new buyers, returning to trade with the buyer only if no buyer wishes to pay the fixed price and no higher bid is submitted.It will be clear that in our environment, both the simple fixed price scheme and the simple auction are feasible. The simple auction prevails when the fixed price is set equal to the maximum possible valuation, while the simple fixed price scheme occurs when the fixed price is set so that buyers are willing to participate if and only if they are willing to pay the fixed price. Our results will show that a simple auction in never optimal for the seller. The seller can always strictly improve his payoff by moving to a scheme in which there is some strictly positive probability that trade will occur at the fixed price. On the other hand, there are reasonable circumstances in which the seller cannot achieve a higher payoff than the one she gets by selling at a fixed price. It is shown that for any positive participation cost, there is a large, but finite, number of potential buyers so that the seller cannot achieve a higher payoff than what she gets by selling at a fixed price. Two simple, but important continuity results are also illustrated. As the cost of participation in the mechanism increases (decreases), the probability with which the seller's unit of output is sold at a fixed price goes to one (zero) in the best modified fixed price mechanism for the seller.Our paper is not the first to generate such a modified fixed price scheme. Both McAfee and McMillan (1988) and Riley and Zeckhauser (1983) come up with similar schemes for the case in which the seller must bear a fixed cost for each new buyer that she contacts. There are two essential differences between our model and theirs. First, as the cost is interpreted as the opportunity cost of participation in the mechanism, it is reasonable to imagine that the seller advertises the mechanism ex ante. Another way of putting this is that the seller pays a fixed rather than a variable cost to communicate the mechanism to buyers. This makes it possible to assume that the mechanism is common knowledge to the seller and all the buyers at the beginning of the communication process. For this reason we can make our case using completely standard arguments. Secondly, the mechanism in the opportunity cost case plays a different allocative role than it does in the case when the seller bears a cost. The mechanism must decide whether buyers should communicate with the seller or pursue their alternative activities, as well as who should trade and at what price. It is this allocative role that makes bilateral communication superior to multilateral communication in a competitive environment. These differences allow us to show, for example, that a simple fixed price scheme is undominated for the seller when the number of buyers is finite. As shown by McAfee and McMillan, this is only possible when the number of potential buyers is infinite when the seller bears the cost of communication.Remarkably, the existence of opportunity costs to buyer participation is not, by itself, sufficient to explain why sellers might prefer bilateral communications mechanisms. Samuelson (1983) and McAfee and McMillan (1987) show that when buyers must pay a fixed cost to submit a bid, which is equivalent to giving up a valuable alternative, a seller cannot expect to earn more than she does in a second price auction (though Samuelson shows that the reserve price may depend on the number of potential buyers). One of the contributions of this paper is to show that the assumption that buyers make their participation decisions simultaneously is critical to this result. Simultaneous entry decisions means that whether or not any particular buyer is assigned to the alternative activity is independent of any other buyer's valuation. With sequential communication the seller is able to relax this constraint. It is precisely the enlargement of the class of feasible mechanism that breaks down the optimality of the simple auction.The second author acknowledges the support of the Social Sciences and Humanities Research Council of Canada and the CRDE at the Université de Montreal.