Development,Common Foes and Shared Values

There is considerable common ground among various positions--involving needs, capabilities, prudential values and basic goods--in the literature about advantage and development. The well-known debate about the relative merits of various spaces relating to advantage, associated with Amartya Sen, has tended to obscure this point. Differences among the relevant positions often have to do with the context in which they are developed, or strategies involved in dealing with common foes, rather than any fundamental divergence in values. The various lists of the components of advantage that these positions offer can, to some degree, be seen as relating to different levels in our concern about the quality of life. To this degree, they can be reconciled, and Sen's capability approach simply highlights an important level. Furthermore, both differences, as well as convergence, in the various lists, may be consistent with shared values.     

Sugden’s critique of Sen’s capability approach and the dangers of libertarian paternalism

The force of Sugden’s critique of Sen’s capability approach depends on the interpretation of the approach adopted. It is persuasive when public reasoning about what is good (or best) for people can justify policies which promote opportunity through (potentially objectionable) restrictions on liberty. Sunstein’s discussion of preference formation and politics shares key elements of Sen’s views. His proposals for democratic controls illustrate the potential danger Sugden signals about application of the capability approach. Sugden is also critical of paternalist views inspired by the findings of behavioural economics. One of these—Sunstein and Thaler’s ‘libertarian paternalism’—is a worrying extension of Sunstein’s earlier views and opens the door to a much wider range of interventions. Sugden rightly and forcefully resists it. His critique of the capability approach may, by contrast, be better seen as sounding a cautionary note than as an act of resistance.     

Pluralism and well-being indices

This paper advocates a variation on James Griffin's prudential value theory of well-being. Prudential value theory is consistent with various forms of pluralism. It also helps us understand how we do intra- and interpersonal comparisons of well-being. If we start from this view of well-being, I suggest we do not have a problem analogous to Arrow's impossibility result for a social welfare function: the analogous conditions are not appropiate constraints on a well-being function. The account of well-being is brought to bear on attempts made by some, particularly Dasgupta and Weale, to make international comparisons of well-being. It is argued that difficulties with such attempts occur chiefly because of disanalogies between interpersonal and international comparisons of well-being.     

Cross‐firm return predictability and accounting quality

We test the hypothesis that if poor accounting quality (AQ) is associated with poor investor understanding of firms’ revenue and cost structures, then poor AQ stocks likely respond more slowly than good AQ stocks to new non‐idiosyncratic information that affects both sets of firms. Consistent with this, results indicate that stock returns of good AQ firms significantly positively predict one‐month‐ahead stock returns to industry‐ and size‐matched poor AQ firms. In testing a delayed‐information‐processing mechanism behind the cross‐firm return predictability, we find that: (i) analyst earnings forecast revisions (FR) mimic the return patterns, as FR of good AQ firms significantly positively predict one‐month‐ahead FR of matched poor AQ firms; (ii) cross‐firm return predictability is concentrated in months with substantial news arrival, including months with Federal Open Market Committee (FOMC) rate announcements, but not in no‐news months; (iii) cross‐firm return predictability is stronger when the good AQ predictor firms have a richer information environment than poor AQ firms as proxied by analyst following, institutional ownership, and the presence of a Big 4 auditor. Collectively, the results uncover a new relation between accounting quality and stock return dynamics.     

Are modern philosophical accounts of well-being excessively ‘individualistic’?

Do modern accounts of well-being which have influenced, or been adopted by, some economists encourage excessive ‘individualism’? I suggest that this question can be answered by considering two objections to modern views of welfare: (1) that they involve an impoverished view of persons and (2) that they decompose all goods into goods for individuals and do not give intrinsic value to collective goods. I argue that two influential views of well-being—the informed desire view and the capability approach—can convincingly respond to these objections. Both views allow for our distinct social roles and identities: the ways in which social norms and institutions shape values and a concern for others. Neither view sees goods as goods only of specific individuals, nor do they require us to separate out neatly the realisation of values in the lives of various individuals. But that does not imply that goods such as friendship are collective rather than individual goods or that collective goods have intrinsic value. Nonetheless, accounts of well-being may need to be more explicit than they have been in incorporating the social dimension.     

SEN ON FREEDOM AND GENDER JUSTICE

Abstract

This comment on the special double issue of Feminist Economics on Amartya Sen's work discusses a number of themes and evaluates certain criticisms and claims in the volume. Sen's work involves a complex differentiation of distinct aspects of freedom. This differentiation is relevant to a number of criticisms. It is particularly helpful in evaluating various claims about Sen's focus on and the adequacy of his account of freedom. The article also considers claims about Sen's neglect of issues relating to interdependence and agency. To the degree that it is argued that some of these claims and criticisms can be addressed within Sen's conceptual framework, this article constitutes a qualified defense of his work. However, it does not claim that Sen's framework addresses all the criticisms that are leveled at it in the volume. Possible themes for future research are also briefly discussed.     

Accounting Quality,Stock Price Delay,and Future Stock Returns*

In frictionless capital markets with complete information and rational investors, stock prices adjust to new information instantaneously and completely. However, a substantial body of research studies information imperfections such as asymmetric information and incomplete information. Information imperfections potentially hinder timely price discovery and are likely associated with delayed stock price adjustment to information. Our first research question therefore is whether the quality of accounting information (or “accounting quality”) is one such information imperfection that is associated with cross‐sectional variation in stock price delay. We define accounting quality as the precision with which financial reports convey information to equity investors about the firm’s expected cash flows. Poor accounting quality is likely associated with higher expected returns through uncertainty about stock valuation parameters and incomplete information. Our second research question therefore is whether the accounting quality component of price delay is associated with higher future stock returns. Consistent with our hypotheses, the results show that poor accounting quality is associated with delayed price adjustment and higher future stock returns. Thus, accounting quality plays a role in timely stock price discovery.     

Further Evidence on Consequences of Debt Covenant Violations

We present new evidence on debt covenant violation (DCV) consequences that have not previously been examined in the literature. In particular, we show that a DCV triggers significant information asymmetry and uncertainty on the part of shareholders and auditors as reflected in higher bid–ask spreads, return volatility, and audit fees. Further, these consequences occur even when lender‐imposed costs are relatively lower, consistent with the act of default itself triggering shareholder and auditor uncertainty. The results highlight costs to the firm of having bright‐line rules in contracts, and add to an understanding of the consequences of DCVs.