Goodwill—an Example of Puzzle-Solving in Accounting—a Reply

Grinyer and Russell's (G&R, 1992) contention that Ma and Hopkins (1988) have imposed the mutually exclusive rules of the valuation-based paradigm on the matching-based paradigm that underlies accounting practice is overly defensive and misguided. Our 1988 paper was an attempt to throw light on why there was so little agreement on the rules governing the treatment of goodwill. G&R's comment does not change our view that the only answer to the 'puzzle' lies in the lack of a full understanding of the nature of goodwill.     

Predicting the Monthly and Annual Current Account Balance from Provisional Data*

This paper uses provisional monthly data to predict the one-month-ahead and one-year-ahead current account balance. Single-equation methods are compared to an eight-equation VAR model that utilizes the Box-Tiao (1977) modifications. It is found that the single-equation model of the current account out-performs the system method for the short- term but the positions are reversed for the annual forecast     

An Experimental Investigation of Increased Professional Education Requirements*

Abstract. We experimentally investigate the effects of a mandatory increase in education on the market for professional labor services when several service qualities are assumed to exist. We show that when suppliers have insufficient incentives to offer high-quality services in a free market, an increase in mandatory education can improve the coordination of supplier decisions and increase efficiency. If suppliers voluntarily provide a sufficient quantity of high-quality services, an education constraint can have the opposite effect. In both instances, however, an increase in the mandatory level of education can be expected to reduce the price of high-quality services while increasing the price of lower service qualities. Résumé. Les auteurs ont procédé à une analyse expérimentale des conséquences qu'aurait une hausse imposée du niveau d'études sur le marché des services professionnels, si l'on suppose l'existence de plusieurs qualités de services. L'analyse démontre que lorsque les stimulants sont insuffisants pour inciter les fournisseurs à offrir des services professionnels de qualité supérieure dans un marché libre, une hausse imposée du niveau d'études peut améliorer la coordination des décisions des fournisseurs et augmenter l'efficience. Si toutefois les fournisseurs offrent de leur propre chef une quantité suffisante de services de qualité supérieure, le fait d'imposer un niveau d'études supérieur peut avoir l'effet contraire. Dans les deux cas, on peut s'attendre à ce qu'une hausse du niveau d'études obligatoire réduise le prix des services de qualité supérieure tout en augmentant le prix des services de qualité plus faible.     

Rational Pessimism, Rational Exuberance, and Asset Pricing Models

The paper estimates and examines the empirical plausibility of asset pricing models that attempt to explain features of financial markets such as the size of the equity premium and the volatility of the stock market. In one model, the long-run risks (LRR) model of Bansal and Yaron, low-frequency movements, and time-varying uncertainty in aggregate consumption growth are the key channels for understanding asset prices. In another, as typified by Campbell and Cochrane, habit formation, which generates time-varying risk aversion and consequently time variation in risk premia, is the key channel. These models are fitted to data using simulation estimators. Both models are found to fit the data equally well at conventional significance levels, and they can track quite closely a new measure of realized annual volatility. Further, scrutiny using a rich array of diagnostics suggests that the LRR model is preferred.     

Absolute and Relative Restriction and Consumer Behavior: Implications for Understanding Global Consumption

Our premise is that researchers have much to gain from an understanding of the global marketplace experiences of impoverished consumers. We argue that influences of absolute and relative restriction, across peoples and societies, are particularly critical. Therefore, this research makes progress by evaluating consumer data from diverse cultures and nations using hierarchical linear models, revealing ways restriction through poverty and consumption impacts well‐being. We find that understanding both absolute and relative poverty is necessary for a more complete picture. Specifically, interactions show that absolute restriction moderates relationships between relative restriction and consumption and well‐being by muting or exacerbating the effects.     

PER UNIT COST ALLOCATION OF INVESTED CAPITAL WITH ANTICIPATED NON-LEVEL PRODUCTION: THE CASE OF EXTRACTIVE INDUSTRIES

The concept of equivalent annual annuity (EAA) has long been used as a method of costing recovery of invested capital and the required return on invested capital over the productive life of a capital project. Academic texts almost universally use EAA methodology with level payment streams (annuities) to allocate capital costs. We develop a methodology for allocating capital costs evenly over each unit of production for projects with anticipated non-level production. This methodology uses a modified EAA approach that allows non-level annuity payment streams. Capital cost allocation is an important component in computing the value of extracted minerals for severance tax purposes; however, many firms and state and federal agencies use ad hocdepreciation schedules to allocate these costs. Ad hocdepreciation methods such as modified accelerated cost recovery system (MACRS) may be appropriate for income tax purposes but are inconsistent with commonly found requirements that severance taxes “shall be assessed on the wellhead or mine mouth fair market value.” The modified EAA approach provides a straightforward alternative that is based on sound financial methodology.     

Alternative Information Sources and the Information Content of Bank Loans

This paper examines the information content of bank loan agreements. We differentiate borrowers according to financial analysts' percentage earnings forecast errors and most recent forecast revisions. The empirical results suggest that banks rely on other indicators as initial screening devices to determine where to best deploy their evaluation and monitoring efforts. If these other indicators are reliable and signal-improving prospects, banks do little further investigation. However, if the indicators are noisy and signal-declining prospects, banks have incentives to expend resources to investigate the borrowers, resulting in the production of valuable information.