Does the Control-based Approach to Consolidated Statements Better Reflect Market Value than the Ownership-based Approach?

Motivated by the recent Discussion Paper (DP) issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on how to define reporting entities, this study investigates the value relevance of consolidated statements under the ownership-based approach of U.S. Accounting Research Bulletin No. 51 (ARB 51) and the control-based approach of International Accounting Standard No. 27 (IAS 27). The results show that consolidated financial statements based on a broader definition of control provide more useful accounting information than those based only on majority-ownership control. We also address one concern raised in the DP, namely, whether a reporting entity should use the common control model to include entities that are under common control of an individual investor or family. The results suggest that accounting standard boards should include the common control model in defining the group reporting entity for firms with complex ownership structures.     

McCloskey, economics as conversation, and Sprachethik

In writing about the 'rhetoric of economics' - particularlyabout the standards which prevent situations where 'anythinggoes' in argument - McCloskey takes an eclectic approach totwo philosophical positions, based on Rorty and Habermas respectively.But these positions, despite sharing some common aspects, alsodifferentiate themselves from each other sharply in importantways. In this paper, it is argued that this eclecticism of McCloskeyis not coherent, as a result of her not completely graspingthe fundamental differences between these two positions, andthat this incoherence has damaging implications for her projectof the rhetoric of economics.     

Reversing an impairment loss and earnings management: The role of corporate governance

This paper examines whether the reversal of a previously recognized impairment loss provides an opportunity for earnings management, and whether such behavior is associated with managers' incentives. It also examines whether a corporate-governance mechanism can mitigate this behavior. Since 2005, listed companies in Taiwan have been required to comply with accounting standards, equivalent to International Accounting Standards (IAS) No. 36 “Impairment of Assets,” which allow reversals of asset-impairment losses. Data on a sample of 55 firms that reversed impairment losses between 2005 and the first quarter of 2007 were matched by industry and size with 55 control firms. Empirical results show that firms recognizing more impairment losses are more likely to reverse impairment losses when doing so would avoid an earnings decline in a subsequent period, which is consistent with the “cookie jar” reserve hypothesis. We also show that such behavior is more pronounced for firms with higher debt ratios, consistent with earnings management being associated with the incentive to avoid violation of debt covenants. However, an effective corporate governance mechanism could mitigate such behavior. Our study may contribute to the debate on global convergence with IFRS, especially convergence between IFRS and U.S. GAAP with respect to the “Impairment of Assets,” by providing a rationale for the latter's prohibition of reversals. It may also contribute to the corporate-governance literature by showing the effect of governance mechanisms on deterring earnings management.     

Core Values,Culture and Ethical Climate as Constitutional Elements of Ethical Behaviour: Exploring Differences Between Family and Non-Family Enterprises

The research presented in this article aims to contribute both quantitatively and qualitatively to the discussion on family versus non-family businesses’ differences in ethical core values, culture and ethical climate. The purpose of our article is to better understand the association between the degree of involvement of a family in an enterprise and its influence on the enterprise’s core values, culture and ethical climate as the constitutional elements of enterprise ethical behaviour. The research indicates that family as well as non-family enterprises maintain positive attitudes towards the core values with ethical content. Regarding the type and strength of culture as well as the type of ethical climate, our research results indicate significant differences between family and non-family enterprises.     

Price formation on stock exchanges: the evolution of trading within the day

Prior analyses of prices of the NYSE and other exchanges findthat transitory price volatility is greater at the open of tradingthan at the close. We extend this line of research by using40 years of hourly Dow Jones 65 composite price index data toestimate transitory volatility throughout the trading day. Ourresults indicate that transitory volatility steadily declinesduring the trading day. We find a similar intraday decline intransitory volatility for a 2-year sample of the individualfirms in the Dow Jones 30 Industrials Index. The results areconsistent with the hypothesis that trading aids price formationand do not support the argument that particular trading mechanismsare the source of greater volatility at the open of trading.     

The impact of IAS 39 on the risk-relevance of earnings volatility: Evidence from foreign banks cross-listed in the USA

We examine the impact of adopting International Accounting Standard 39 – Financial Instruments: Recognition and Measurement (IAS 39) by non-US commercial banks cross-listed in the US on earnings volatility and its risk relevance. As IAS 39 requires the recognition of unrealized fair-value gains and losses for a larger set of financial and derivative-financial instruments, and the impairment charges for loans and receivables, we expect and find that IAS 39 adoption increased earnings volatility in IFRS-adopting firms from 2005 onwards. Furthermore, both hedge accounting and the fair value option under IAS 39 are designed to reduce mixed-measurement volatility and to improve the sensitivity of firm risk measures to earnings volatility. We also find that the relationship between credit ratings (proxy for risk) and earnings volatility increases for IFRS-adopting firms after 2005. The evidence is consistent with the argument that IAS 39 increases the credit relevance of earnings volatility.     

Cost reduction from resolution/improvement of carcinoid syndrome symptoms following treatment with above-standard dose of octreotide LAR

Aims: To calculate the cost reduction associated with diarrhea/flushing symptom resolution/improvement following treatment with above-standard dose octreotide-LAR from the commercial payor’s perspective.

Materials and methods: Diarrhea and flushing are two major carcinoid syndrome symptoms of neuroendocrine tumor (NET). Previously, a study of NET patients from three US tertiary oncology centers (NET 3-Center Study) demonstrated that dose escalation of octreotide LAR to above-standard dose resolved/improved diarrhea/flushing in 79% of the patients within 1 year. Time course of diarrhea/flushing symptom data were collected from the NET 3-Center Study. Daily healthcare costs were calculated from a commercial claims database analysis. For the patient cohort experiencing any diarrhea/flushing symptom resolution/improvement, their observation period was divided into days of symptom resolution/improvement or no improvement, which were then multiplied by the respective daily healthcare cost and summed over 1 year to yield the blended mean annual cost per patient. For patients who experienced no diarrhea/flushing symptom improvement, mean annual daily healthcare cost of diarrhea/flushing over a 1-year period was calculated.

Results: The economic model found that 108 NET patients who experienced diarrhea/flushing symptom resolution/improvement within 1 year had statistically significantly lower mean annual healthcare cost/patient than patients with no symptom improvement, by $14,766 (p?=?.03). For the sub-set of 85 patients experiencing resolution/improvement of diarrhea, their cost reduction was more pronounced, at $18,740 (p?=?.01), statistically significantly lower than those with no improvement; outpatient costs accounted for 56% of the cost reduction (p?=?.02); inpatient costs, emergency department costs, and pharmacy costs accounted for the remaining 44%.

Limitations: The economic model relied on two different sources of data, with some heterogeneity in the prior treatment and disease status of patients.

Conclusions: Symptom resolution/improvement of diarrhea/flushing after treatment with an above-standard dose of octreotide-LAR in NET was associated with a statistically significant healthcare cost decrease compared to a scenario of no symptom improvement.     

Tax planning, regulatory capital planning, and financial reporting strategy for commercial banks

We test whether banks' investment and financing policies canbe explained by tax status. We document changes in bank holdingsof municipal bonds in response to changes in tax rules relatingto deductibility of interest expense. We also document an associationbetween banks' marginal tax rates and their investment and financingdecisions, which is consistent with the existence of tax clienteles.However, banks do not sort themselves perfectly into investmentand financing clienteles because of adjustment costs. We positspecific types of transaction-cost impediments to tax planning,and document that banks apparently trade off these costs againsttax-planning benefits.     

DETERMINATION OF PARTICIPATION DECISION, HIRING DECISION, AND WAGES IN A DOUBLE SELECTION FRAMEWORK: MALE-FEMALE WAGE DIFFERENTIALS IN THE U.S. LABOR MARKET REVISITED

The magnitude of the male-female wage differential is known to be highly sensitive to the specification of the wage equations used. An important source of misspecification is the failure to correct the sample selection bias that results from estimating the wage equation obtained through two sequential decisions: the worker's decision to participate in the labor market and the employer's decision to hire. Estimation of the wage equation ignoring this double selection process leads to biased estimates, and consequently the resulting male-female wage differentials are likely to be misleading. Following a double selection approach and using a sample from the National Longitudinal Survey of Youth, this article examines the determinants of not only the wage equation but also the worker's participation and the employer's hiring decisions in both male and female samples. The study further demonstrates that the unexplained male-female wage differential remains underestimated when the roles of both selection decisions are ignored in the estimation of wage equations.