Ben S. Bernanke,Timothy F. Geithner,and Henry M. Paulson Jr.: Firefighting: The financial crisis and its lessons

Business Economics -     

When the Client Is a Former Auditor: Auditees' Expert Knowledge and Social Capital as Threats to Staff Auditors' Operational Independence

Auditees can play an active role in influencing staff auditors' professional judgment and skepticism. Yet, although it constitutes one of the main threats to auditor independence, very little is known about the means and extent of auditees' power during the audit engagement. To address this knowledge gap, our study focuses on a specific category of auditees, namely, auditees who have worked as auditors in large accounting firms. We interviewed 36 of these auditees and triangulated our findings with 11 interviews conducted with auditors. At the theoretical level, we conceptualize auditees' influence over auditors as intentional and active through the notion of “social power.” Overall, our analysis shows that the efficacy of auditees' power during the engagement materializes through the mobilization of two main power resources developed during their time at the firms: (i) expert knowledge of auditing techniques and (ii) social capital. On the one hand, relying on their cognitive authority, auditees' employ three different power strategies to constrain staff auditors' operational independence: stage-setting, teaching, and questioning. On the other hand, auditees' social capital can support the use of two additional strategies: attracting and monitoring. Our triangulation analysis confirms our findings and suggests that auditors may be aware of the threats to independence that auditee expertise and social capital pose. By focusing on auditees' agentic capabilities—that is, individuals' capabilities to consciously exert influence over the course of events—we reinterpret the pressures exerted by clients on auditors as the product of strategic actions and discuss substantive consequences for independence risk.     

The Essential Role of Sense of Community in a Youth Sport Program

This multiphased study identifies the salient benefits that parents seek for their families from a youth sport program. Phase 1, a preseason focus group study of parents of swimmers in three clubs (N = 15), indicated parents seek a sense of community for their children and themselves, and sense of community is linked to their desire for children to learn sport and life skills. Phase 2, a postseason survey of parents in the same three clubs (N = 129), tested the relationships among coaching quality, friendships, organizational communication, sport and life skills, sense of community, parents' satisfaction, and their repeat purchase intention. Using path analysis, sense of community was identified as the key driver of satisfaction and repeat purchase intention, with swimming improvement also having a significant effect on satisfaction. These findings highlight the central role sense of community plays for participants and their families in youth sport contexts.     

Gold price risk and the returns on gold mutual funds

A model is presented for estimating the theoretical gold price elasticity of the value of mutual funds investing in gold mining companies. The theoretical elasticity shows that if the funds invest in companies whose assets are comprised primarily of operating gold mines, then the return of an investment in the fund will be at least as great as an investment in gold (i.e., the gold price elasticity of the gold fund is greater than 1). Empirical tests of the above propositions are presented. Empirical tests also show, however, that the gold mutual funds contain a substantial amount of risk which is not explained either by market risk or gold price risk. Accordingly, gold mutual funds and gold bullion do not bring identical risks to an investor's portfolio.     

Workforce or workfare? The optimal use of work requirements when labour is supplied along the extensive margin

This paper explores the use of workfare as part of a tax mix when labour supply responses are along the extensive margin. In an economy where the government has a priori chosen any tax‐and‐benefit schedule, we show that, despite their common goal of providing additional incentives for individuals to enter the labour force, workfare and an earned income tax credit are at odds with each other. We also show that, in the presence of an optimal nonlinear income tax, introducing unproductive workfare is always suboptimal when individuals face the same disutility of being on workfare. When this disutility is heterogeneous, unproductive workfare may be a useful policy tool.     

A Temporary Federal Discount Program to Stimulate Consumer Spending

In this paper, we evaluate a new proposal to stimulate recovery from the current recession: a temporary federal price discount on consumer goods. An attractive feature of the temporary federal discount program is that it gives consumers a price incentive to purchase more rather than simply giving consumers more disposable income, which they might choose to either spend or to save. According to our simulations with the Fair macro-econometric model, a temporary 20 percent federal discount on all consumer goods in a severe recession would significantly reduce the unemployment rate while causing only a small increase in federal debt as a percentage of GDP.     

It was 60 years ago today! Reflections on change in China: A decade framed by two parades

The lyrics below are mine but the tune is “Sgt. Pepper's Lonely Hearts Club Band.” Though you may have been born after this song hit the airwaves, this Beatles standard should be one of those melodies that is indelibly etched in your mind … so sing, and sing it loud:

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