Disentangling the Pure Time Effect From Site and Preference Heterogeneity Effects in Benefit Transfer: An Empirical Investigation of Transferability

Two identical open-ended contingent valuation surveys assessing willingness-to-pay for better protection against flooding were administered in 2005 and 2010 at the same site. The 2010 survey was administered to the same respondents as those interviewed in 2005 as well as to new participants. This experimental design allows us to separate the pure temporal dimension from the spatial and social dimensions of transferability, thereby permitting an investigation of the temporal reliability associated with a transfer of value estimates over a 5-year time horizon. Having isolated the pure effect of time, the design further allows assessing the social dimension of transferability.     

Undergraduate Coursework in Economics: A Survey Perspective

Survey results from a large sample of economics departments describe offerings for principles courses, coursework requirements for economics majors, and program augmentations such as capstone courses, senior seminars, and honors programs. Findings are reported for all institutions, and institutions are subdivided into six different categories based on public or private control and the highest economics degree offered. The coursework required for the economics major typically consists of ten courses, five in a required core and five electives. The most conspicuous curriculum change over the past 30 years is the rise of econometrics as a required course, now mandatory at about half of major programs. The authors estimate that about 40 percent of students who matriculate as first-year undergraduates take at least one economics course before they leave.     

Firm growth and innovation

In recent years, there has been an increase in empirical and theoretical work that addresses the role of innovation as one of the main sources of firm growth. The purpose of this special issue is to strengthen the role played by innovation as a determinant of firm growth. Despite the emergence of a vast empirical literature on whether innovative firms grow more quickly in terms of sales and employees, a number of crucial questions and answers remain. While a large number of applied papers observe a positive link between innovation and firm growth, the complexity of R&D activities, together with the diversity of innovation strategies and the multiplicity of growth modes, requires a multidimensional approach to examine the contribution of innovations on firm growth. To shed light on the link between firm’ growth and innovation sources, we organized a meeting of leading scholars of firm’ growth and innovation. The papers of this special issue were presented at the workshop on ‘Firm growth and innovation’ held on 28 and 29 June, 2012, in Tarragona, Spain. The papers that compose this special issue deal in depth with innovation activity, firm growth and the interaction between firm growth and innovation.     

Multi-firm voluntary disclosures for correlated operations

We study the no-arbitrage theory of voluntary disclosure (Dye, J Account Res 23:123–145, 1985, and Ostaszewski and Gietzmann, Rev Quant Financ Account 31: 1–27, 2008), generalized to the setting of $n$ firms, simultaneously and voluntarily, releasing at the interim-report date ‘partial’ information concerning their ‘common operating conditions’. Each of the firms has, as in the Dye model, some (known) probability of observing a signal of their end of period performance, but here this signal includes noise determined by a firm-specific precision parameter. The co-dependency of the firms results entirely from their common operating conditions. Each firm has a disclosure cutoff, which is a best response to the cutoffs employed by the remaining firms. To characterize these equilibrium cutoffs explicitly, we introduce $n$ new hypothetical firms, related to the corresponding actual firms, which are operationally independent, but are assigned refined precision parameters and amended means. This impounds all existing correlations arising from conditioning on the other potentially available sources of information. In the model the actual firms’ equilibrium cutoffs are geometric weighted averages of these hypothetical firms. We uncover two countervailing effects. Firstly, there is a bandwagon effect, whereby the presence of other firms raises each individual cutoff relative to what it would have been in the absence of other firms. Secondly, there is an estimator-quality effect, whereby individual cutoffs are lowered, unless the individual precision is above average.     

The Effects of Uncertainty and Disclosure on Auditors' Fair Value Materiality Decisions

Financial accounting standards increasingly require fair value measurements. I experimentally examine how uncertainty affects auditors’ adjustment decisions when evaluating fair values. I manipulate two types of uncertainty, input subjectivity and outcome imprecision, and one reporting choice, supplemental disclosure. I find that auditors are most likely to require adjustments when fair values contain both more input subjectivity and more outcome imprecision, but that this likelihood diminishes when clients supplement recognized fair values with additional disclosure. Thus, consistent with moral licensing, I find that auditors tolerate greater potential misstatement in the financial statements when clients provide disclosure, suggesting that the SEC's preference for supplemental disclosure may have the unintended consequence of affecting fair values recognized in the body of the financial statements. I also provide evidence that auditors determine adjustment size by comparing recorded fair value to the nearest bound, rather than the midpoint, of the auditors’ own range estimate, consistent with strict application of auditing standards.     

The implications of ineffective internal control and SOX 404 reporting for financial analysts

The mandatory reporting of firms’ internal control effectiveness continues to be debated by equity market participants, U.S. regulatory agencies and oversight committees. We investigate the implications of material weaknesses in internal control and SOX 404 required reporting of such for financial analysts because analysts are important intermediaries in the U.S. capital market and it is not known whether analysts’ forecasts or coverage decisions are affected by firms’ internal control problems or reporting, respectively. Results of our empirical tests indicate that analysts provide less accurate forecasts and there is greater forecast dispersion for firms with ineffective internal control. We also find that firms that disclose internal control problems have less analyst coverage and that analyst following declines after the material weakness in internal control is disclosed. The results are robust to controlling for potential self-selection bias and management earnings guidance. Our study documents the consequences of ineffective internal control for an important class of financial statement users and suggests the required reporting on the effectiveness of internal control is beneficial to understanding the properties of analysts’ forecasts.     

Cooperation in environmental policy: a spatial approach

Inefficient competition in emissions taxes for foreign direct investment creates benefits from international cooperation. In the presence of cross-border pollution, proximate (neighboring) countries have greater incentives to cooperate than distant ones as illustrated by a model of tax competition for mobile capital. Spatial econometrics is used to estimate participation in 110 international environmental treaties by 139 countries over 20 years. Empirical evidence of increased cooperation among proximate countries is provided. Furthermore, strategic responses in treaty participation vary across country groups between OECD and non-OECD countries and are most evident in regional agreements.     

The effect of rankings on honesty in budget reporting

We conduct an experiment to investigate the effect of rankings, which are pervasive in practice, on the honesty of managers’ budget reports, which is important for sound decision making in organizations. Participants in our experiment are ranked in one of four ways: (1) firm profit, (2) own compensation, (3) both firm profit and own compensation, and (4) randomly, which serves as our baseline condition. None of the rankings affect participants’ remuneration. Compared to our baseline (random rankings) setting, where participants indeed exhibit honesty concerns, we find that rankings based on firm profit significantly increase honesty and that rankings based on own compensation significantly decrease honesty. Participants who received both rankings were significantly more honest than participants in the own compensation rankings condition. We did not, however, find significant differences in honesty between the both rankings and firm profit rankings conditions. As such, participants in the both rankings condition seemed to focus more on the firm profit metric than on the financially congruent own compensation metric. We also find that our results are stable across periods, suggesting that the effects of rankings neither increased nor dissipated over time. We discuss the contributions of our study and concomitant findings to accounting research and practice.     

Concurrent sourcing,governance mechanisms,and performance outcomes in industrial value chains

We examine transaction governance in the context of concurrent sourcing, where a manufacturer relies on sourcing from external suppliers and in‐house production simultaneously. Our focus is on (1) a buyer's use of particular safeguards or governance mechanisms vis‐à‐vis an external supplier and (2) how the effects of these mechanisms on various performance outcomes are influenced by the joint presence of an internal manufacturing branch. We conduct two studies in the apparel industry and show that performance outcomes are a joint function of (1) the individual governance mechanisms that are deployed in a particular relationship and (2) the larger sourcing context (concurrent or singular). Copyright © 2013 John Wiley & Sons, Ltd.