Cointegration and control: Assessing the impact of events using time series data

Control groups can provide counterfactual evidence for assessing the impact of an event or policy change on a target variable. We argue that fitting a multivariate time series model offers potential gains over a direct comparison between the target and a weighted average of controls. More importantly, it highlights the assumptions underlying methods such as difference in differences and synthetic control, suggesting ways to test these assumptions. Gains from simple and transparent time series models are analysed using examples from the literature, including the California smoking law of 1989 and German reunification. We argue that selecting controls using a time series strategy is preferable to existing data‐driven regression methods.     

Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions

We survey the use of financial performance measures in determining executive pay among significant Australian financial institutions. We document evidence of the pervasiveness with which externally disclosed non‐GAAP (non‐Generally Accepted Accounting Principles) financial measures are also used internally to determine variable remuneration, with the apparent popularity of cash profit after tax in short‐term incentives plans. Our evidence also highlights the increasing use of peer group‐adjusted measures (e.g., relative cash earnings per share and return on equity ranking against a peer group) in determining longer‐run incentives, despite the fact that members of the peer group do not measure financial performance in a directly comparable manner. Detailed analysis of the four major trading banks (Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac) reveals differences in the way non‐GAAP earnings measures are calculated across the major banks, as well as some variation over time in the way individual banks measure performance. We also document evidence of non‐GAAP earnings restatements, with around 25% of non‐GAAP results subsequently being restated. These restatements are more likely to result in a downward revision of the initially reported non‐GAAP result than an upward revision. We therefore conclude that existing measures of financial performance used to determine senior executive compensation are not as ‘objective’, as might be assumed.     

Connecting book rate of return to risk and return: the information conveyed by conservative accounting

Review of Accounting Studies - This paper revises the standard interpretation of the book rate of return as a measure of profitability. Rather, due to conservative accounting, the book rate of...     

The Joint Effect of Ethical Idealism and Trait Skepticism on Auditors’ Fraud Detection

Journal of Business Ethics - Although regulators have identified ethical lapses as a key factor contributing to auditors’ failure to detect their clients’ fraudulent financial reporting...     

Multinational Corporate Power,Influence and Responsibility in Global Supply Chains

This study examines the influence of underwriter–auditor relationship (UAR) on pre-initial public offering (IPO) earnings management. Using a sample of Chinese to-be-listed firms, we find that a close UAR, as reflected in repeated collaborations between an underwriter and an audit firm in IPOs, is positively associated with pre-IPO earnings management. This association is more pronounced for firms with politically connected auditors/underwriters, firms with less reputable auditors/underwriters, firms located in provinces with weak legal environment, firms to-be-listed on boards with lax listing requirements, and firms whose auditors are with low industry specialization, and legal liability exposures. We provide further evidence that UAR is associated with greater likelihood of irregular activities in post-IPO period and poorer post-IPO financial performance. To the extent that we control for alternative explanations and potential endogeneity, our results suggest that the collusion incentive is likely to drive repeated collaborations between underwriters and auditors in the Chinese IPO market. Our findings provide interesting implications for auditors, investors, and regulators seeking to understand the Chinese IPO market.     

The Impact of Automated Reminders on Credit Outcomes: Results from an Experimental Pilot Program

This study evaluates the impact of an automated reminder program designed to help credit counseling consumers manage their payment obligations and financial goals. Credit counseling consumers were randomly assigned to receive reminders linked to their financial goals and payment obligations for one year after an initial credit counseling session. We find that consumers offered reminders were 21% less likely than the control to experience severe (60+ day) payment delinquencies and were 12% less likely to experience a 30+ day delinquency. At the same time, these consumers saw a 10.5 point increase in credit scores relative to the control group. There were no significant impacts on total credit card balances or installment debt levels. This analysis provides promising evidence that automated reminders can provide an important complement to traditional credit counseling when it comes to improving consumers' credit profiles and does so at a fairly low cost.     

The dramatic breakdown of the market orientation concept in the pharmaceutical industry: lessons from Vioxx

In this article we present an in-depth case study to better understand the underlying market orientation concept in relation to bringing new technologies to the marketplace. We use the case history of the anti-arthritis drug Vioxx, developed and marketed by the company Merck & Co. Inc that allegedly killed thousands of customers. The case shows how market orientation can take shape and how the key components may form an explosive cocktail prone to problematic behaviour rather than a synergistic set of orientations that creates value for customers. From the data covering 20 years, it is clear that a consumer orientation and competitor orientation, for example, are difficult to internalise and balance by employees. A competitive orientation seems to lead to tunnel vision regarding profit and market share outcomes. Implications for the fundamental market orientation concept, innovation management, together with management challenges are discussed.     

Introduction to symposium: Smallholders in communist and postcommunist societies

The primary contributions of smallholders during the communist and early postcommunist periods have been food production and labour for large farms. Those conditions are changing, however, as modern farms require less labour and food supply may be imported. For most smallholders in Central and Eastern European and former Soviet Union countries, the postcommunist neoliberal environment has not brought significant improvement, and strong arguments can be made that land grabbing, social and economic exclusion, and rural poverty are worse than regime bias during the communist period. Cooperatives, which have empowered smallholders in other parts of the world, have not been as well developed in postcommunist nations.     

The Spillover Effect of SEC Comment Letters on Qualitative Corporate Disclosure: Evidence from the Risk Factor Disclosure

In this study we use the recently mandated risk factor disclosure to examine the spillover effect of the Securities and Exchange Commission (SEC) review of qualitative corporate disclosure. We find that firms not receiving any comment letter (“No‐letter Firms”) modify their subsequent year's disclosures to a larger extent if the SEC has commented on the risk factor disclosure of (i) the industry leader, (ii) a close rival, or (iii) numerous industry peers. We refer to this effect as “spillover.” Further, we find that after SEC comments on the industry leader's disclosure, No‐letter Firms also provide more firm‐specific disclosures in the subsequent year. The increased disclosure specificity reduces these firms’ likelihood of receiving SEC risk disclosure comments on their new filings. Our evidence suggests an indirect effect of the SEC review of qualitative disclosure.     

Dual consumer–organisation identification in international alliances and partnerships: consumers’ supportive intentions towards local and foreign firms

This study investigates whether firms that are evaluating potential partners might benefit from considering how consumers view these organisations, specifically the extent to which consumer identification with local and foreign partners influences consumer satisfaction with a co-branded product and consumers’ post purchase/consumption supportive intentions towards each partner. Data came from institutions of higher education in Hong Kong and Sri Lanka that operate in collaboration with a foreign partner. A conceptual model was developed and then tested using structural equation modelling. Dual consumer–organisation identification was found to be a significant predictor of consumer satisfaction with the co-branded product and consumers’ supportive intentions towards each partner. Furthermore, the perceived identity attractiveness of each partner was significantly related to the consumers’ identification with each partner. The results suggest that organisations which indulge in collaborative arrangements with foreign firms should recognise that each partner plays a significant and distinct role in generating consumer satisfaction and positive post-purchase/consumption behaviours.