A melting pot — Gold price forecasts under model and parameter uncertainty

Gold is special as it is influenced by a wide range of factors such as commodity prices, interest rates, inflation expectations, exchange rate changes and stock market volatility. Hence, forecasting the price of gold is a difficult task and the main problem a researcher faces is to select the relevant regressors at each point in time. This model uncertainty in combination with parameter uncertainty is explicitly accounted for by Dynamic Model Averaging (DMA) which allows both the forecasting model and the coefficients to change over time. Based on this framework, we systematically evaluate a large set of possible gold price determinants and find that DMA (1) improves forecasts compared to other frameworks, (2) yields strong time-variation of gold price predictors and (3) favors parsimonious models. The results also show that typical in-sample features of gold such as its hedge property are weaker in an out-of-sample context.     

Management earnings forecasts and the quality of analysts’ forecasts: The moderating effect of audit committees

This study investigates whether effective audit committees influence the association between management earnings forecasts and the properties of analysts’ forecasts. We posit that this influence on the part of an audit committee would likely result from increased responsibility for monitoring voluntary disclosure. Using the four attributes that the Blue Ribbon Committee (1999) and prior research suggest as being indicative of audit committee effectiveness, we find that analysts’ forecasts exhibit higher accuracy and lower dispersion with the issuance of management forecasts for those firms employing audit committees that are composed exclusively of independent directors, include an accounting expert, and act with due diligence. We also find that effective audit committees strengthen the association between management and analyst forecast accuracy. Our evidence, therefore, supports the notion that effective corporate governance influences the reliability of voluntary disclosure, and thereby benefits the users of financial information.     

Analysts’ pre-tax income forecasts and the tax expense anomaly

This paper examines whether analysts’ pre-tax income forecasts mitigate the tax expense anomaly documented by Thomas and Zhang (J Account Res 49:791–821, 2011). They find that seasonal changes in quarterly income tax expense are positively related to future returns after controlling for the earnings surprise and conclude that investors underreact to value-relevant information in tax expense. When analysts issue both earnings and pre-tax income forecasts, they implicitly provide a forecast of income tax expense. We posit that this implicit forecast helps investors recognize the persistence of current tax expense surprise for future earnings. Accordingly, we expect that mispricing of tax expense will be less severe for firms with earnings and pre-tax income forecasts. As expected, we find that the presence of pre-tax income forecasts significantly weakens the positive relation between tax expense surprise and future returns, consistent with analysts’ implicit forecasts of tax expense mitigating the tax expense anomaly.     

Does religiosity enhance the quality of management earnings forecasts?

This study investigates whether firms located in areas with higher levels of religiosity disclose higher-quality management earnings forecasts than do other firms. Using a US sample of 4,655 firm-year observations over the period 2001 to 2014, we find that firms headquartered in counties with higher proportions of religious adherents issue earnings forecasts that are less optimistically biased and that the effect of religiosity is concentrated in firms with weak monitoring mechanisms. We also find that religiosity mitigates pessimistic bias in management earnings forecasts, but only for those issued by firms operating in low litigation industries. This result suggests that when the litigation risk is high, both ethicality and risk aversion are at work and their competing effects likely offset each other. Additionally, we document that forecasts issued by firms in more religious areas trigger stronger stock price reactions than those issued by other firms and that the effect is limited to forecasts containing optimistic bias. Overall, our results show that religiosity enhances the quality of management earnings forecasts, but the effect varies based on different conditions.     

The Jarrow/Turnbull default risk model—Evidence from the German market

Abstract

This article estimates default intensities within the continuous-time Jarrow and Turnbull model for German bank and corporate bond prices. It is shown that a joint implicit estimation of the default intensity and the recovery rate is numerically unstable. In addition to cross-sectional estimations, separate estimations (for each bond individually) are performed. Results strongly support separate estimation over the building of any cross-sections. In contrast to preceeding literature, the optimum volume of data required to provide reasonable estimates of the default intensity is also investigated. It is shown that calibration based on daily data as a rule does not minimize the ex ante mean squared pricing errors. Finally, it is shown that the constant default intensity assumption is not sound with the underlying data and the determinants of the default intensity are investigated. Regressions show that the lagged default intensity estimate, the level of the default-free term structure and liquidity proxies affect the estimated default intensity via joint parameters.     

Dispersion of analysts’ forecasts and the profitability of trading strategies around the preannouncement

Contrary to prior research, the preannouncement of earnings before taxes, either good or bad, partially reduces the forecast error in the French Stock Market. Moreover, this study shows that the abnormal return at the formal announcement is negatively related to the dispersion of analysts’ forecasts after the preannouncement. It is positively related to the actual earnings surprise, especially for bad news. After controlling for the precision of the preannouncement and the actual earnings surprise, investors should buy stocks with negative (positive) abnormal return at the preannouncement of bad (good) news.     

Investment by German Firms Abroad—Unpatriotic?

Original Papers

Investment by German Firms Abroad—Unpatriotic?     

Does the midpoint of range earnings forecasts represent managers’ expectations?

The accounting literature has used the midpoint of range forecasts in various research settings, assuming that the midpoint is the best proxy for managers’ earnings expectations revealed in range forecasts. We argue that given managers’ asymmetric loss functions regarding earnings surprises, managers are unlikely to place their true earnings expectations at the midpoint of range forecasts. We predict that managers’ true expectations are close to the upper bound of range forecasts. We find evidence consistent with these predictions in 1996–2010, especially in the recent decade. Despite their role as sophisticated information intermediaries, analysts barely unravel the pessimistic bias that managers embed in range forecasts. Furthermore, we find that the upper bound rather than the midpoint better represents investors’ interpretation of managers’ expectations in recent times. Our study cautions researchers to refine their research designs that use management range forecasts and sheds light on the role of financial analysts in the earnings expectations game.     

The directly-elected mayor in the German Länder—introduction,implementation and impact

In the early 1990s, all German Länder (states) introduced direct election of executive mayors, along with the procedures to recall a sitting mayor by local referendum. This paper looks at the context and causes of this major institutional change and its impact on local politics. Although the directly-elected executive mayor has risen to a dominant position, effective institutional and political checks and balances are in place to prevent misuse of power. Finally, the German reforms are compared with other European countries.     

The relevant experience criterion for accounting accreditation by the aacsb—A current assessment

On April 15, 1985, the American Assembly of Collegiate Schools of Business (AACSB) dropped the quantitative relevant experience requirement for accounting faculty and replaced it with a subjective experience standard. The number of days of relevant experience required and the proportions of faculty who must have experience were not specified in the revised standard. The categories of relevant experience which satisfy the standard were also changed. This article examines the revised experience standard in the light of preferences expressed in a survey of administrators whose accounting programs have been accredited by the AACSB.     

CEO bonus compensation: the effects of missing analysts’ revenue forecasts

We investigate the incremental contract relevance of analysts’ revenue forecasts while controlling for earnings forecasts and find CEOs receive smaller bonuses when missing analysts’ annual and quarterly revenue expectations. Our results support the link between the value relevance of the revenue performance measure and the contract relevance of that measure. Further, we find revenue forecasts to be more contract relevant for CEOs of firms with high growth expectations, consistent with Rees and Sivaramakrishnan’s Contemp Acc Res 24(1):259–290, (2007) findings that growth firms receive a larger market penalty for missing revenue targets. Overall, our findings provide empirical support for the conjecture that compensation committees rely on information consistent with that conveyed in analysts’ revenue forecasts when contracting with management.     

Integrating e-commerce and knowledge management—what does the Kaiser experience really tell us

The growth of e-commerce (electronic commerce) is vast, complex and rapidly expanding. E-commerce is clearly an integral part of business, spreading across the areas of Business to Consumer, Business to Business, e-government and e-health. In fact, we could be forgiven for thinking we are in the e-millennium. E-medical record is an example of one such e-initiative to touch the health care sector. However, the true advantages of these e-medical records are not clear. We present the case example of medical automated record system (MARS), the automated medical record system at Kaiser Permanente-Ohio. In so doing, we show that the true advantage of this system is that it functions as a knowledge management system (KMS) simultaneously enabling and facilitating convergence and compliance of health care treatment, as well as enhancing and supporting the creation and renewal of knowledge pertaining to health care delivery. This demonstrates the importance of integrating a knowledge management focus in many e-commerce initiatives and we conclude by outlining the implications of such a focus for all organisations trying to increase their customer moment of value.     

German banks’ behavior in the low interest rate environment

Financial Markets and Portfolio Management - Using data from a quantitative survey of German banks at three points in time (2015, 2017 and 2019), we analyze the impact of changes in the interest...     

Earnings forecasts: the case for combining analysts’ estimates with a cross-sectional model

Review of Quantitative Finance and Accounting - We propose a novel method to forecast corporate earnings, which combines the accuracy of analysts’ forecasts with the unbiasedness of a...     

Quality in professional accounting education provision in the UK – the CIMA experience

The Chartered Institute of Management Accountants (CIMA) introduced its Quality Through Partnership (QTP) scheme in 1994. This scheme was designed to provide a system of monitoring and quality control for colleges providing CIMA tuition. Following a review of colleges by trained assessors, those colleges which had in place quality procedures that met certain minimum threshold standards were approved under the QTP scheme in terms of the quality of their course delivery. The aim of this paper is to trace the development of the QTP scheme in the UK since its inception within the context of evolving notions of ‘quality’. The paper begins by discussing notions of quality, distinguishing between quality control and quality assurance, and emphasizing the evolutionary process indicated by the progression from control to assurance. The history of the QTP scheme since its inception is then traced. Finally, the experience of the QTP scheme is reflected upon in the light of the concept of quality within professional education.     

How resilient is the German banking system to macroeconomic shocks?

Macroeconomic stress testing studies often rely on rather short sample periods due to the limited availability of banking data. They may fail to appropriately account for the cyclicality in the interaction between the banking system and macroeconomic developments. In this paper, we use a newly constructed data set on German banks’ income and loss statements over the past 39 years to model the interaction between the banking sector and the macroeconomy. Our VAR analysis indicates that the level of stress in the banking sector is strongly affected by monetary policy shocks. The results rationalize the active behavior of central banks observed during periods of financial market crises.     

On the implied market price of risk under the stochastic numéraire

This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a numéraire. An equivalent martingale measure is not unique for this market, and there are non-replicable claims. Some rational choices of the equivalent martingale measures are suggested and discussed, including implied measures calculated from bond prices constructed as a risk-free investment with deterministic payoff at the terminal time. This leads to possibility to infer a implied market price of risk process from observed historical bond prices.     

Electoral cycles in MPs’ salaries: evidence from the German states

Members of parliament (MPs) often set their own salaries. Voters dislike self-serving politicians, and politicians are keen to please voters. In line with political business cycle theories, politicians thus may delay giving themselves a salary increase until after elections. We investigate electoral cycles in the salary increases of German state MPs. Using data for 15 states over the period 1980–2014, we find no evidence that increases in MP salaries are influenced by election cycles. Politicians can increase their salaries at any point during the legislative period without negative consequences. We posit that this may be because even those voters who are most disenchanted with politics likely understand that all politicians benefit from a salary increase and thus do not punish the governing party at the polls.