Does accounting conservatism pay?

We investigate whether or not there is a link between conservative accounting practices and the sensitivity of executive pay to accounting performance. Using several accrual‐based measures of accounting conservatism as well as alternative measures of accounting performance, we estimate an econometric model of CEO compensation that incorporates the interaction of accounting conservatism and accounting performance. Consistent with optimal contracting theory, we find that the sensitivity of executive pay to accounting performance is higher for firms that report conservative accounting earnings. These results support the hypothesis that accounting conservatism, by limiting earnings management opportunities and improving the reliability of accounting performance measures, allows firms to formulate contracts that tie executive compensation more closely to accounting performance.     

FLYPAPER EFFECT INCORPORATING SPATIAL INTERDEPENDENCE

This paper examines the decentralization process in the state of Maharashtra. Among the states in India, Maharashtra's efforts at decentralization are regarded as a success story. Using cross‐section data for 243 urban local governments, the paper examines the flypaper effect, that is, the expenditure stimulus of grants from the state government to the urban governments. The significance of spatial factors has been highlighted in the study. The models have been estimated using spatial econometric techniques. Most of the estimated models show the presence of the flypaper effect.     

Impacts of Additional Guidance Provided on International Financial Reporting Standards on the Judgments of Accountants

This pioneering study examines the impact of the provision of additional guidance on International Financial Reporting Standards (IFRS) as a “decision aid” on the accuracy of judgments of the accountants. To extend the prior research on accounting judgment and decision-making, we also examine the interactive effects of task complexity and additional guidance on the judgments of accountants. The results provide evidence that those accountants who are provided with decision aid in the form of additional guidance on IFRS make more accurate judgments than accountants who are not provided with such guidance. Furthermore, the study provides evidence that this additional guidance improves the judgments of accountants when they undertake tasks which they find complex. The results indicate that additional guidance on IFRS needs to be provided and suggests that accountants should exploit any guidance which is currently provided in IFRS and by the International Financial Reporting Standards Interpretations Committee.     

Structural VAR models for Malaysian monetary policy analysis during the pre- and post-1997 Asian crisis periods

This article conducts an in-depth investigation into building a Structural Vector Autoregression (SVAR) model and analysing the Malaysian monetary policy. Considerable attention is paid to: (i) the selection of foreign, policy and target variables; (ii) establish identifying restrictions and improve the estimates of impulse response functions; (iii) assess the importance of intermediate channels in transmitting monetary policy mechanism; and (iv) the way in which the 1997 Asian financial crisis affected the working of monetary policy. Malaysia is an interesting small open economy to study because, following this crisis, the government imposed capital and exchange rate control measures. The overall results suggest that the crisis and the subsequent major shift in the exchange rate regime have significantly affected the Malaysian ‘Black Box’. In the pre-crisis period, domestic variables appear to be more vulnerable to foreign monetary shocks. Further, the exchange rate played a significant role in transmitting the interest rate shocks, whereas credit and asset prices helped to propagate the money shock. In the post-crisis period however, asset prices play a more domineering role in intensifying the effects of both interest rate and money shocks on output, and the economy was insulated from foreign shocks.     

Self‐selection,endogeneity, and the relationship between CEO duality and firm performance

This study focuses explicitly on the methodological implications of the endogenous theory of governance as applied to firm performance. In particular, if firms choose their governance structures as part of a constrained performance maximization process, then application of an appropriate empirical methodology should reveal statistical evidence of such behavior. In this study we take advantage of the endogenous switching regression model framework to determine whether such predicted optimizing behavior can be corroborated by the data. The model allows us to test explicitly for selection behavior in accordance with comparative advantage and, concomitantly, the presence of selectivity bias, in estimating the impact of CEO duality on firm performance. The selection and performance equations are modeled in accordance with the extant accounting, economics, and management literature on the impact of the dual governance structure on firm performance. Overall, we tested four performance measures for the entire sample of firm‐year observations as well as for the largest three industries in terms of sample sizes. The major finding, robust in all cases, is that there is no evidence to support a contention that CEO duality is a structure purposefully chosen for optimizing performance. If firms are indeed choosing the dual leadership structure, they are doing so for reasons other than improving performance from what it would be otherwise. In fact, for performance measured as market return and earnings per share, there is evidence of a significant selectivity bias that acts to lower performance below what it would have been under random assignment. For performance measured by Tobin's q and return on assets, we found neither evidence of selectivity bias, nor any significant marginal performance impacts of CEO duality. Such findings are inconsistent with an endogenous governance theory, at least when applied to firm performance. Copyright © 2009 John Wiley & Sons, Ltd.     

Impact of Globalisation on Employment in Nigeria

This study analyses the effect of globalisation on employment in Nigeria considering the economic, political and social aspects of globalisation using annual time series data for the period 1970 - 2013. The study uses ARDL bounds testing to examine the short-run and long-run effects. The findings indicate that in the short-run, the economic and social aspects of globalisation are beneficial as they induce an increase in employment rate, although both the two aspects of globalisation have only marginal effect in the short-run, while the political integration shows no effect in the short-run. However, in the long-run, all the three aspects of economic, political and social integration show substantial beneficial impact as they all induce a significant increase in the employment rate.     

Growth performance of Indian states

This article is concerned with evaluating the growth performance of states in the Indian Federation. This was sought to be done by estimating growth equations for a group of 19 states in India as well as sub-groups of these states during the period from 1981–1982 to 2004–2005. It has been found that, systematically, the contribution of educational attainment (social sector capital) to the growth process is larger than the contribution of physical capital. An important concern in the article is whether growth regressions estimated for a large group of 19 states can be replicated for smaller sub-groups. The problem of parameter heterogeneity is investigated, and the results of this study show that there is considerable parameter heterogeneity in the growth equations across groups. Rates of convergence estimated in this article also vary from extremely low levels (in the absence of the education variable) to more than 10% (in the presence of the education variable). The results of this study thus point to the great importance of education in improving the growth performance of Indian states.     

Economics of Soil Compaction due to Machinery Traffic and Implications for Machinery Selection

To determine the impact of soil compaction, experiments were carried out on corn in 1976 (above-average rainfall year) and in 1977 (below-average rainfall year) with various sizes of tractors and levels of intensities (number of passes). Contrary to the common belief, larger tractors were found to cause less economic loss. These losses ranged from $400/ha for 30 kW tractors to $63/ha for 180 kW tractors in 1976. The losses (or gains in 1977) are added to the fixed, operating, and timeliness costs of machinery, which is obtained by the engineering method of finding the least-cost machinery complement. The optimum machinery sizes are then calculated and discussed for corn silage and grain corn crops, based on the typical six passes/operations under two weather conditions. Afin de déterminer les implications de la compaction du sol, des expériences ont été réalisées sur le maïs en 1976 (année avec des précipitations au-dessus de la moyenne) et en 1977 (année avec des précipitations en dessous de la moyenne). Pour réaliser ces expériences, des tracteurs de différentes grosseurs ont été utilisés à différents niveaux d'intensité (nombre de passages). Contrairement à la croyance populaire, les plus gros tracteurs ont été ceux qui ont le moins affecté le rendement des plantes. En 1976, les pertes de rendement ont varié entre $ 400/ha a avec un tracteur de 30 kW et $63/ha avec un tracteur de 180 kW. Ces pertes (ou gains comme ce fut le cas en 1977) ont été additionnées aux coûts fixes, variables ainsi qu'aux coûts dus aux retards d'exécution associés à la machinerie agricole. Finalement, les grosseurs optimales de tracteurs sont calculées et discutées pour le maïs-fourrager et le maïs-grain en se basant sur une intensité d'utilisation de six passages/opérations pour deux conditions météorologiques différentes.     

Short-term financing in a cash-constrained supply chain

In this paper we consider a two-level supply chain with a single retailer and a manufacturer, where both the firms are facing financial constraints and can not produce/order their optimal quantity. Our work shows that a lender who finances the manufacturer has a motivation to finance the retailer as well. Motivated by this, we investigate lender's problem of financing both the firms by making a joint decision on the loan amount and comparing it with the case when lender makes independent decision on loan amount for both the firms. Our numerical study indicates that if one of the firms in the supply chain has sufficiently low cash, joint decision (we refer to it as supply chain financing) may be better not only for the lender but for the retailer and manufacturer as well.     

The effect of lot-sizing on workload variability

Lot-sizing models which group demand requirements for one or more consecutive time periods into a single production run have received considerable attention in recent years. Material Requirements Planning (MRP) systems must, for instance, make a lot-size decision for each planned order release. Existing decision models attempt to minimize the sum of setup plus inventory holding costs. However, lot-sizing tends to increase the work center load variability, and, consequently, the costs associated with changing production levels from period to period should be incorporated into the economic analysis. This study is concerned, first of all, with analytically describing the relationship between dynamic lot-sizing models and workload variability. Secondly, in order to account for production level change costs we propose a simple modification to existing heuristic models. Lastly, we employ a simulation model to empirically extend these results to a typical MRP multiechelon production environment. An example is included to show clearly that with cost premiums for overtime and severance or guaranteed minimum costs for undertime the traditional lot-sizing techniques significantly underestimate actual costs and can lead to very costly policies.Mean, variance and coefficient of variation of period work time requirements are derived as a function of several algorithm characteristics. Average cycle time (number of periods covered by a single batch) is found to be the most influential factor in determining workload variability. Variance grows approximately in proportion to this cycle time with the proportionality constant being the square of average period workload. Cycle time and demand variability also contribute to workload variability. Results indicate that for a given average cycle time, the EOQ method will minimize workload variability. When N products utilize the same work center, the coefficient of load variation will be reduced by a factor of N^{?$\text{1}\text{2}$} unless requirements are positively correlated. Positive correlation would result when products have similar seasons or parent items. In this case grouping such products cannot help reduce variability.In order to incorporate production level change costs into existing heuristics we may simply introduce a term consisting of a penalty factor times average cycle time. The penalty factor represents the costs of period by period production level changes. Several popular heuristics are extended in this fashion, and it is found that solutions are still readily obtainable, requiring only modifications to setup or holding cost parameters.The effects of level change costs are examined via simulation for a specific yet typical environment. It is found that when setup costs are significant, traditional lot-sizing heuristics can provide cost savings and service level improvements as compared to lot-for-lot production. However, whereas for our model the obtainable profit improvement from lot-sizing was 25% in the case of freely variable capacity, actual improvements were only one half as large when reasonable hiring and firing practices and overtime and undertime costs were considered. Consequently, management needs to consider carefully labor costs and work center product relationships when determining a production scheduling method.