Credit crises, money and contractions: An historical view

The relatively infrequent nature of major credit distress events makes an historical approach particularly useful. Using a combination of historical narrative and econometric techniques, we identify major periods of credit distress from 1875 to 2007, examine the extent to which credit distress arises as part of the transmission of monetary policy, and document the subsequent effect on output. Using turning points defined by the Harding-Pagan algorithm, we identify and compare the timing, duration, amplitude and co-movement of cycles in money, credit and output. Regressions show that financial distress events exacerbate business cycle downturns both in the 19th and 20th centuries and that a confluence of such events makes recessions even worse.     

Evaluating international consumption risk sharing gains: An asset return view

International consumption risk sharing studies often generate counterfactual implications for asset return behavior with potentially misleading results. We address this contradiction using data moments of consumption and asset returns to fit a canonical international consumption risk sharing framework. Introducing persistent consumption risk, we find that its correlation across countries is more important for risk sharing than that of transitory risk. To identify these risk components, we jointly exploit the comovement of equity returns and consumption. This identification implies high correlations in persistent consumption risk, suggesting a strong degree of existing risk sharing despite low consumption correlations in the data.     

Similar GDP-inflation cycles. An application to CEE countries and the euro area

In this paper we look at business cycles similarities between CEE countries and the euro area. Particularly, we uncover GDP-inflation cycles by adopting a trend-cycle decomposition model which allows the trend to be either stochastic or deterministic, i.e. of the non-linear type. Once cyclical components are derived, we test for ex post restrictions at both with-in (GDP-to-inflation) and cross-country (CEECs vs. euro area) levels. Allowing for different degrees of cyclical similarity, we find that a similar inflation vs. GDP cycle is not rejected only for Poland, Lithuania, Romania and Estonia (with Latvia and the euro area being at the boundary). Looking at cross-country results, almost all countries feature a fair degree of similarity with respect to the euro area. Exceptions are Poland, Hungary, Latvia and Slovenia because of lack of a similar cycle either occurring in GDP or inflation, yet not in both. Finally, observing how concurrence between each CEECs cycle and the euro area evolved over time, we find that inflation conditional correlation increased stemming from the EU accession of most CEECs and as a result of the commodity price shock preceding 2008. Further, inflation and GDP conditional correlations receded during the course of 2009–2010, possibly resulting from more idiosyncratic adjustments in the aftermath of the crisis on the monetary/fiscal side. Interestingly, Slovenia, Slovakia, Estonia and Bulgaria display a conditional correlation pattern in GDP and inflation which roughly suggest a strong out-of-phase recovery starting from 2005.     

An Italian forerunner of modern cost allocation concepts: Lorenzo De Minico and the logic of the 'flows of services'

This article provides an analysis of the thoughts of an Italian academic who lived in the first half of the twentieth century, Lorenzo De Minico, in particular it regards his approach to the allocation of common costs. De Minico's main concern was with the conventional, subjective allocation methods proposed by Italian practitioners and academics of his time. He valiantly searched for a methodological approach based on using causality as the basis for linking costs to cost objects. The most interesting finding of De Minico was the concept of 'flows of services' and his commitment to offering a convincing answer to the problem of general or common cost apportionment that went beyond 'traditional' criteria. De Minico's 'flows of services' referred to the outputs of resources consumed in indirect services. These indirect costs can be considered easily 'directly attributable' only if it is possible to measure the connected 'flows of services'. The article shows that the concept developed by De Minico in early twentieth century of Italy confirms the idea that some theoretical frameworks for a causal allocation of common costs were in existence many decades before information technology made such systems a practical proposition.     

A true and fair view of the principles/rules debate

The nature of 'reality' in the context of financial reporting is, at best, a generally agreed, inter-subjective human construction. This article considers the nature, and alternative perceptions, of the notions of principles and rules, exploring the idea of true and fair view presentation as a meaningful requirement in its own right, and as an override. An overview of the standard setting process in the United States from the historical perspective identifies factors fostering the rules-based accounting system. We then analyse recent developments in the United States regarding the adoption of a principles-based accounting system, and in the U.K. arising from the introduction of IAS in Europe. Both support the conclusions that: The purpose of financial reporting is to give an understanding, which is not misleading, of the underlying economics of an enterprise; the 'underlying economics' represents an inherently subjective construct; rules, by themselves, are inadequate, whether or not they are based on principles; major and fundamental differences exist between various players on the world regulatory scene; much of the debate at the regulatory and policy level is at best vague and confused, more likely disingenuous, possibly intellectually dishonest; interested parties will interpret words, concepts and agreements differently; significant limitations for international standardization are implied by the above points. Further, no one player, construct or culture can impose its will at a global level.
In 1942 the U.S. SEC aptly captured the appropriate sentiment: 'The basic question [is] whether the financial statements performed the function of enlightenment, which is their only reason for existence'.     

Reforming the UN: the view of the American people

It may come as a surprise that surveys of the US people on the subject of the UN and global issues show that the US government policy of ignoring major UN reform is at odds with strong preferences by the American people for many major UN reforms. Illustrating both ignorance and some surprising discretion, it is also true that the US public opposes few of the many reforms tested. The Americans Talk Issues Foundation (ATI) has conducted six opinion surveys of US people on the UN and global issues in the past three years, the highlights of the latest of which are reported here.     

China's path:a view from the top

Vice Minister of Finance li Yong talks about his country's strategy to harness the discipline of accounting standards to help China achieve its development agenda.STORY LYNDA DUGDALEPHOTOSKEET BOOTH THE PROGRESS AND REFORMS achieved by China in its modern era of openness have created unprecedented economic productivity and prosperity.The resultant growth has given the country an international prestige that not only does its population proud,but also gives it a strong and important voice in the governance of the international economy.     

Accounting and international relations: Britain,Spain and the Asiento treaty

The boundaries between accounting and law are contingent on time–space intersections. Here, these margins are explored in the realm of international relations by focusing on the Asiento, an 18th century treaty granting Britain the monopoly to trade slaves with the Spanish American colonies. Although a relatively minor concern of treaty-makers, noncompliance with provisions of the Asiento by the South Sea Company placed accounting centre stage in conflicts between Britain and Spain. In combination with geo-strategic and domestic political circumstances, reporting failures exacerbated the commercial dispute between the two nations which culminated in war in 1739. The accounting provisions of the Asiento are examined by drawing on managerialist and realist theories of treaty compliance. It is shown that British noncompliance with accounting obligations under the treaty was driven by realist self-interest and the maximisation of material gain. Given that such motivations dominated behaviour attempts to manage noncompliance through the routine processes and structures of international politics proved unsuccessful. Managerial devices such as diplomatic exchanges over treaty ambiguity and securing greater informational transparency merely provided further opportunities for the pursuit of self-interest. It is suggested that divergent perceptions of the role of accounting in international relations stem from the unique political, legal, social and cultural configurations of nation states. The study highlights the limitations of accounting as an instrument of treaty verification. Its effectiveness in that capacity is diminished where there is no shared understanding of the significance, purpose, content and interpretation of accounting information.     

A comparison of the financial institutions' view and the market's view of country creditworthiness

In 1979, both Institutional Investor and Euromoney began publishing country risk ratings. For years, international commercial bankers have used these rating services as part of their international evaluation process for lending to sovereign governments. An examination of these services suggests that Institutional Investor's ratings, which are based upon questionnaire responses from commercial bankers, reflect the financial institutions' perception of country creditworthiness. On the other hand, Euromoney's ratings represent a market view in that they are based upon data observed from financial and credit markets. The purpose of this article is to investigate the consistency between the financial institutions' view and the market's view in assessing the creditworthiness of developing and newly industrialized countries.     

Selling off the public estate: A broker's view

There is much contemporary discussion about the impact on the UK of the creation of a single market amongst the member nations of the European Community (EC) in 1992. This impact needs to be assessed as precisely as possible given the unsubstantiated and conflicting claims being made. Because 1992 purports to be a further removal of trade barriers within the EC, the most accurate guide to its probable effect is a study of the impact of EC membership to date. This article analyses historical experience in order to reveal future trends.     

Evolution and institutional foundation of the hawala financial system

This article examines the evolution and the institutional foundation of the century-old Islamic hawala financing system. Analysis of the functional principles of this system will show that it is a highly efficient, extremely robust institutional arrangement for overcoming the risks of opportunism among the transaction partners. It is an institution that was developed against the backdrop of a lack of formal legal systems. Thus, hawala can be seen as club-like arrangements, which are able to provide the transaction parties with an institutional framework to assure enforcement of contracts without relying on any national law. Today, therefore, it is able to expand outside and independently of existing laws and regulations. It is able to move large amounts of money without recourse of the formal banking system and even without retaining any bookkeeping notes. Instead, it is based on the trust of the participating parties and its social and religious embeddedness within the Islamic community.     

Risk, knowledge and contradiction: An alternative and transdiciplinary view as to how risk is induced

The following paper attempts to elucidate the relationship between risk and knowledge across a specific form of contradiction by (1) examining the notion and definition(s) of contradiction; (2) examining a specific type of contradiction (as ‘ambiguity’) which can act as either a cause or mitigator of risk; and (3) examining the nature of both knowledge and risk. The resultant proposed framework provides an alternative perspective on risk, whereby it is argued that risk is induced across repressed ambiguities; with the latter also resulting in truncated or limited knowledge. Conversely, risk is mitigated across the full expression of these same ambiguities, which in turn leads to enriched or complexified knowledge.This perspective argues that as long as we fail to recognise and embrace the myriad of dyadic pairs or ambiguities which both surround us and are inherent within us as human beings, we strongly increase the likelihood of both validating and reinforcing Beck's [U. Beck, La société du risque: Sur la voie d’une autre modernité, Alto Aubier, Paris, 2001] thesis of a future society where risk predominates.     

An integrated view of tests of rationality,market efficiency and the short-run neutrality of monetary policy

This paper analyzes an important class of models in which expectations play an important role. Topics included in the analysis are tests of: (1) rationality of forecasts in either market or survey data, (2) capital market efficiency, (3) the short-run neutrality of monetary policy and, (4) Granger causality in macroeconometric models. The common elements of these tests are highlighted. In particular, cross-equation tests for rationality or the short-run neutrality of money are shown to be equivalent to more common regression tests in the literature. These results demonstrate that the exact specification of the relevant information set used in rational forecasts is not necessary for the cross-equation tests to have desirable asymptotic properties. Also discussed are the conditions for identification of coefficients and testability of hypotheses.     

The structure and formation of business groups: Evidence from Korean chaebols

We study the evolution of Korean chaebols (business groups) using ownership data. Chaebols grow vertically (as pyramids) when the controlling family uses well-established group firms (“central firms”) to acquire firms with low pledgeable income and high acquisition premiums. Chaebols grow horizontally (through direct ownership) when the family acquires firms with high pledgeable income and low acquisition premiums. Central firms trade at a relative discount, due to shareholders’ anticipation of value-destroying acquisitions. Our evidence is consistent with the selection of firms into different positions in the chaebol and ascribes the underperformance of pyramidal firms to a selection effect rather than tunneling.     

A framework for journal assessment: The case of the Journal of Banking & Finance

We propose a citation-based framework for the assessment of journal influence and demonstrate its application with the Journal of Banking and Finance. The framework assesses the current position of the journal, its trends and the reasons behind the trends. The Journal of Banking and Finance is found to be one of the leading journals in the field of finance and its influence is increasing. In fact, it appears to be part of a group of leading journals that is separating itself from the other journals that are generally regarded as peers. Finally, the Journal of Banking and Finance is found to be the only leading finance journal with a high concentration of banking articles, making it a primary outlet for influential articles in this area.