Stock market reactions to audit failure in Japan: The case of Kanebo and ChuoAoyama

This paper investigates the impact of accounting fraud by Kanebo and the resulting penalties on Kanebo and its auditor, ChuoAoyama, on the stock prices of clients of ChuoAoyama and the other Big 4 auditors in Japan. Studying such a case in a low-litigation country provides an opportunity to test whether loss of an auditors' reputation matters without an insurance rationale. We find that the announcements of poor audit quality has significantly decreased the stock prices of clients of ChuoAoyama and, to a lesser extent, stock prices of the clients of the other Big 4 auditors. This industry-wide spillover has not been previously studied.     

Statistical Methodologies for the Market Risk Measurement

This paper classifies statistical methodologies available for the marketrisk measurement. With the help of the weighted likelihood, a broad class ofnon-normal distributions, which are not generally considered so far, areapplied to possibly hetero-scedastic financial variables. The approach is compared with popular procedures such as GARCH and J. P. Morgan's using daily dataof 12 financial variables.     

Market design for standardization problems with agent-based social simulation

This paper provides a computational market model with technological competitions among standards and presents simulations of various scenarios concerning standardization problems. The market model has three features: (1) economic entities such as consumers and firms are regarded as autonomous agents; (2) micro interactions among consumer agents or firm agents have essential mechanisms interpretable in real markets; and (3) consumers’ preferences and firms’ technologies co-affect their evolutionary behavior. In recent years, consumers have experienced various inconveniences from de facto competition based on a market mechanism. Standardization communities or committees such as the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) need to design a compatible standard or a de jure standard in a market. However, it is difficult for market designers to decide a method or timing for the standardization. Here, by introducing a novel technique used in agent-based social simulation (ABSS), which we call “scenario analysis,” we aim to support such decision making. Scenario analysis provides the possible market changes that can occur following implementation of a design policy under a specific market situation and the market mechanisms that generate these market changes.     

Collusion and discrimination in organizations

In a principal-multi-agent setting we investigate how optimal contracts should be modified under relative performance evaluation when agents collude. Agents may write side-contracts, which are not contingent on their effort choices but indirectly control them through side-transfers. We show that the optimal collusion-proof contract is to introduce a “discriminatory policy” in the sense that the wage schemes offered to agents depend on their identities even if they are identical with respect to productive abilities. Such discriminatory wage schemes explain the organizational strategy of “divide and conquer” as an optimal response to collusion.     

Contracts, search, and organizational diversity

In this paper we develop a search model that allows for Pareto-ranked multiple equilibria and investigate its implications on organizational diversity. The novel feature of the model is that multiple equilibria are obtained by the self-contained feedback mechanism between optimal contracting choices and the reservation value, which is in sharp contrast to existing literature that emphasizes the increasing returns to scale in the matching function. Our results provide some new insights on why there may exist significant differences in the internal organization of firms across countries, and even in the same country and industry.     

Retail power market competition with endogenous entry decision—An auction data analysis

Deregulation in the electric power industry has been aimed at promoting competition and thereby enhancing the industry’s efficiency. We use the auction data of public power procurements to study the impact of the reform on the retail power market in Japan. We quantify this impact by measuring a decline in power charges, controlling for the endogeneity bias caused by the entrants’ bid-submission decisions. Our results suggest that power charges would decline by about 0.48 yen/kW h on average when two or more providers bid at an auction.     

Toward Reasonable Capitalism: The Role of John R. Commons’s Price and Business Cycle Theories

Abstract

John R. Commons thought that prices should be stable and that the law of supply and demand should be controlled by the power of the state through patent law and by protecting bargaining equality. Commons also thought that prices should be stabilized by macro monetary policy. These means would allow the realization of a “reasonable price.” Commons called the objective and measurable value in money, which is determined by a court ruling, “reasonable value.” Analysis of Commons’s price and business cycle theories point toward the realization of both “reasonable price” and “reasonable value” and toward “reasonable capitalism” that can replace banker capitalism.     

Entry Deterrence in a Unionized Oligopoly

We investigate wage determination between an incumbent firm and its labour union under threat from another firm entering its product market. In equilibrium, it may be optimal for a labour union of the incumbent firm to lower its wage demand. This may make it possible for the incumbent firm to maintain a higher employment level, in that the lower wages can help the firm deter the entry of a rival firm. This will yield a higher profit for the incumbent firm and a lower utility level for the labour union compared with those in an equilibrium with no threat of entry.
JEL Classification Numbers: J51, L10     

Signal-extracting education in an overlapping generations model

Summary. In order to get good positions in companies, people try to enter highly-ranked universities. However, abilities vary greatly between individuals. High-ability individuals have an incentive to send signals to firms by obtaining a higher level of education in order to distinguish themselves from low-ability individuals. This paper constructs an overlapping generations model in order to examine the macroeconomic consequences of such sorting behavior of individuals. There are two kinds of possible equilibria in our model. In one equilibrium, only the high-ability agent can obtain higher education and thus an elite society emerges. In the other equilibrium, all ability types have the chance to obtain higher education and thus a society with mass higher education emerges. We also discuss the possibility of multiple equilibria of these different steady states and the dynamic change in wage differentials.Received: 9 October 2002, Revised: 15 July 2003, JEL Classification Numbers: D82, J31, O10.The authors acknowledge Osamu Hayashida, Noriyoshi Hemmi, Hideshi Itoh, Michihiro Kandori, Toshihiro Matsumura, Takuya Nakaizumi, Osamu Nishimura, Ryoji Ohdoi, Tadashi Yagi, Noriyuki Yanagawa, and seminar participants at Doshisha University, the University of Tokyo, and Contract Theory Workshop at Kyoto University for helpful comments and suggestions. We would also like to thank an anonymous referee for valuable comments. This paper is part of the academic Project on Intergenerational Equity (PIE), funded by a scientific grant from Japans Ministry of Education, Culture, Sports, Science and Technology (grant number 603).