Activity-based costing diffusion across organizations: an exploratory empirical analysis of Finnish firms

This study aims to explain what drives innovation diffusion in management accounting during its various phases. Based on Abrahamson [Abrahamson, E. (1991). Managerial fads and fashions: the diffusion and rejection of innovations. Academy of Management Review, 16, 586–612], four perspectives with potential to explain the diffusion of accounting innovations are identified: the efficient-choice, forced selection, fad and fashion perspectives. The diffusion of activity-based costing (ABC) in Finland provides an empirical context to study how these four perspectives apply to management accounting innovation. Data comes from a set of four surveys (total n=490, response rate 39.5%, 114 ABC cases), from interviews of consultants, academics and software industry employees, and from archival sources. The study proposes that the driving forces behind innovation diffusion in management accounting change over the course of diffusion. Efficient choice may explain the earliest adoptions, whereas fashion-setting organizations exert considerable influence in the take-off stage. Later on, the influence of fashion setting organizations diminishes. Further diffusion is explained both by mimetic behaviour and efficient-choice.     

The dynamics of ex-ante weighted spread: an empirical analysis

We model the evolution of the ex-ante weighted spread (EWS) embedded in an open Limit Order Book (LOB) and investigate the impact of observed market-related variables on the spread. Our modeling involves decomposing the joint distribution of the weighted spread into simple and interpretable distributions. Our main results have several implications: (i) EWS features high persistence in autocorrelation; (ii) lower-level LOB remains liquid even after a high trade imbalance; (iii) lower- and higher-level LOB react to temporal spread change and trade imbalance in different ways; and (iv) both trade durations and quote durations have seasonality effects. We also show, through a simple high frequency trading exercise, that the use of the model can be economically important. Further, our model provides an estimation of market resilience.     

The liquidity effects of revisions to the S&P 500 index: an empirical analysis

We study liquidity effects following S&P 500 index revisions. Using a recent sample of S&P 500 additions, we find a sustained increase in the liquidity of the added stocks. Further, the improvement in the liquidity of added stocks is due primarily to a decrease in the direct cost of transacting and a smaller decline in the asymmetric information component. Finally, the event period cumulative abnormal returns for additions are significantly associated with the decrease in the effective spread, particularly the decline in the direct cost of transacting. In contrast, the liquidity of deleted stocks declines over the three months following deletion.     

Budgetary biasing in organizations: Theoretical framework and empirical evidence

The purpose of this study is to increase the understanding of budgetary biasing behaviour. The findings are of both a theoretical and empirical nature. The theoretical results provide a framework containing two major parts: an explanatory model of budgetary biasing at the individual level, and an organizational model for budgetary biasing. In the empirical part of the study an attempt is made to test the usability of the framework in a relatively large firm with several profit-centers. Biasing action is found to be a result of an interplay of various inter-related factors. Overall, the framework is considered to provide a valid basis for trying to understand and interpret the budgetary biasing behaviour in the firm studied.     

Optimal allocation to hedge funds: an empirical analysis

What percentage of their portfolio should investors allocate to hedge funds? The only available answers to the above question are set in a static mean-variance framework, with no explicit accounting for uncertainty on the active manager's ability to generate abnormal return, and usually generate unreasonably high allocations to hedge funds. In this paper, we apply the model introduced in Cvitanic et al (2002b Working Paper USC) for optimal investment strategies in the presence of uncertain abnormal returns to a database of hedge funds. We find that the presence of the model risk significantly decreases an investor's optimal allocation to hedge funds. Another finding of this paper is that low beta hedge funds may serve as natural substitutes for a significant portion of investor risk-free asset holdings.     

Risk structure of interest rates: an empirical analysis for Deutschemark‐denominated bonds

This paper empirically studies the risk structure of interest rates for Deutschemark‐denominated bonds. For this purpose, we estimate term structures of interest rates using the parsimonious fitting function of Nelson and Siegel (1987) for virtually risk free Government bonds and five different rating categories classified by Moody's ratings (Aaa, Aa, A, Baa, Ba). The sample period covers the time interval from July 1990 to December 1996. We investigate the pricing errors resulting from our estimation procedure and analyse credit spreads over the term structure of Government bonds.     

Barriers to depository uses of derivatives: an empirical analysis

We examine the relationship between derivatives use of US savings associations during 1993–1997. The advantage of examining thrifts is that they are only end-users of derivatives. We find that: (1) firm size positively correlated with derivatives use generally and to OTC derivatives use in particular; (2) the dominant underlying reason for the effect of firm size upon derivatives usage appears to be transactions cost, not the cost of acquiring the expertise to manage portfolio interest rate risk; and (3) the use of derivatives, especially OTC derivatives, is a least cost method of controlling interest rate risk. The lack of usage by smaller institutions, while consistent with profit-maximization, suggests that a significant segment of the industry is limited in its ability to manage interest rate risk.     

The effect of country-specific index trading on closed-end country funds: an empirical analysis

The American Stock Exchange initiated trading in 17 World Equity Benchmark Shares (acronym “WEBS”™) in April 1996. WEBS are index funds designed to track the Morgan Stanley Capital International (MSCI) indexes. We examine the effect of this event on closed-end country funds (CECFs) and find that percentage discounts increase. CECFs with a corresponding WEBS index experience the largest increase and also show a decline in trading volume. We attribute these results to (1) the effects of increased competition and (2) a reduction in the market segmentation premium. Since additional WEBS have begun trading, and other approvals may follow, similar effects could be experienced in the future.     

Vertical control of a distribution network—an empirical analysis of magazines

How does an upstream firm determine the size of its distribution network, and what is the role of vertical restraints? To address these questions, we develop two empirical entry models. In the benchmark coordinated entry model, the upstream firm sets market‐specific wholesale prices and implements the first best. In the more realistic restricted/free entry model, the upstream firm only sets a uniform wholesale price. As a second‐best solution, it restricts entry in markets where business stealing (encroachment) is high, and allows free entry elsewhere. We apply the model to magazine distribution, and assess the profitability of alternative vertical restraints. Banning restricted licensing reduces profits only slightly, so the business rationale for restricted licensing should not be sought in the prevention of encroachment. Furthermore, market‐specific wholesale prices implement the first best, but the profit increase would be small, providing a rationale for the commonly observed uniform wholesale prices. Finally, uniform franchise fees are much less effective than a uniform wholesale price to cope with local market differences.     

Comparing empirical results of transaction avoidance rules studies

Empirical legal research in the United Kingdom (UK) and in The Netherlands (NL) has provided data on the extent to which the transaction avoidance rules (avoidance powers, actio Pauliana) generate practical problems. This paper's goal is to explore the similarities and differences of the data. To achieve this, existing empirical data found in Dutch and UK research are compared. From the comparison, it follows that the UK and NL share similar problems, that is there are no proceeds in a substantial number of cases in which the office-holder (or liquidator) encounters a suspect transaction, the majority of the disputes are conducted in the shadow of the law, proceeds are obtained more often from settlements than from proceedings, insufficient funds and evidence problems are experienced as major obstacles for successfully invoking the transaction avoidance rules, and a presumption or shift of burden of proof influences the outcome significantly. Copyright © 2008 John Wiley & Sons, Ltd.     

The flight‐to‐quality effect: a copula‐based analysis

We derive and estimate a copula combining the features of the Frank and Gumbel copulas to analyse the relationship between equity and long‐term bond returns. Our analysis of quarterly returns from 1952 to 2003 finds that, in general, there is a positive relationship between equity returns and bond returns. In extreme situations, however, there is approximately a one‐in‐seven chance of a flight‐to‐quality effect where large negative equity returns are associated with large positive bond returns.     

The revaluation of assets as a signalling device: a theoretical and an empirical analysis

In many countries, firms can choose whether or not to report a revaluation in the financial statements. An analytical model is developed to indicate conditions in which it is more likely that successful firms will choose not to revalue assets as a credible signal to potential investors. These industry settings include a high variance in performance and low equity-to-debt ratios. The empirical results for Belgium confirm that successful firms are less likely to revalue assets in those industries. However, only the revaluation of fixed tangible assets and not financial assets seems to be a credible signal. Finally, the results support the choice to revalue, but not the amount of revaluation, as a signalling device.     

Predictability of the simple technical trading rules: An out‐of‐sample test

In a true out-of-sample test based on fresh data we find no evidence that several well-known technical trading strategies predict stock markets over the period of 1987 to 2011. Our test safeguards against sample selection bias, data mining, hindsight bias, and other usual biases that may affect results in our field. We use the exact same technical trading rules that Brock, Lakonishok, and LeBaron (1992) showed to work best in their historical sample. Further analysis shows that this poor out-of-sample performance most likely is not due to the market becoming more efficient – instantaneously or gradually over time – but probably a result of bias.     

The quality of Neuer Markt quarterly reports—an empirical investigation

When compared with its prior performance, the year 2001 is not one of the best years for the Neuer Markt. The Neuer Markt's reputation has been marred by the practice of several companies on the exchange that have published misleading information in the form of incomplete annual and quarterly data. In this study, we examine the quality of Neuer Markt quarterly reports by concentrating on the disclosure level of 47 Neuer Markt companies' reports for the third quarter of 1999, 2000, and 2001. To enable making comparisons, we have established four disclosure indexes that measure each report's compliance with the Neuer Markt Rules and Regulations (NM Rules and Regulations) as well as with International Accounting Standards (IAS) and U.S. Generally Accepted Accounting Principles (U.S. GAAP) interim reporting standards. We then attempt to find typical attributes of Neuer Markt enterprises that provide high or low level of disclosure accounting information in their quarterly reports. The results demonstrate that the level of disclosure has increased over time, partly in response to additional enforcement. In this regard, the quarterly reports standardization project of Deutsche Boerse is an important landmark in satisfying investors' information needs.     

Volatility surfaces: theory,rules of thumb,and empirical evidence

Implied volatilities are frequently used to quote the prices of options. The implied volatility of a European option on a particular asset as a function of strike price and time to maturity is known as the asset's volatility surface. Traders monitor movements in volatility surfaces closely. In this paper we develop a no-arbitrage condition for the evolution of a volatility surface. We examine a number of rules of thumb used by traders to manage the volatility surface and test whether they are consistent with the no-arbitrage condition and with data on the trading of options on the S&P 500 taken from the over-the-counter market. Finally we estimate the factors driving the volatility surface in a way that is consistent with the no-arbitrage condition.     

Enforcement and disclosure under regulation fair disclosure: an empirical analysis

While Regulation Fair Disclosure (FD) was designed to benefit investors by curbing the selective disclosure of material non‐public information to ‘covered’ investors, such as analysts and institutional investors, it can also impose costs. This paper finds that FD levies three kinds of enforcement and disclosure costs. First, investors cannot recover as part of an SEC enforcement action the gains to covered investors from their alleged use of the non‐public information. Second, investors lose because the market responds negatively to an SEC enforcement announcement. Third, investors suffer because some companies post their FD filings well after the due date, without earlier public disclosure.     

Forbearance: An empirical analysis

Several recent articles have analyzed conditions under which allowing capital-deficient banks to continue to operate may be optimal policy. This article examines the performance of banks admitted into the FDIC's Capital Forbearance Program between 1986 and 1989 and finds that, for the majority of these banks, there was no substantial improvement in their capital ratios. We use a logit regression analysis to attempt to identify those banks whose financial condition improved with forbearance and find that banks which did improve are not clearly identifiable from pre-forbearance financial data. Instead, the banks which improved did so due to infusions of new capital, extraordinary income, and improvements in the local economies, factors which are not easily identifiable ex ante by regulators. The conclusion is that, while some grants of forbearance may result in large saving to the FDIC, in the majority of cases granting forbearance to troubled banks is unlikely to reduce the expected loss to the deposit insurer.University of HoustonUniversity of HoustonCooperative Bank of Taiwan, Taipei, Taiwan     

Audit report lags in the Belgian non-profit sector: an empirical analysis

In the current study, we examine audit report lags (ARLs) among a large sample of Belgian non-profit organisations (NPOs). Doing so, we (i) add to the very recent, but rapidly growing literature on financial reporting and auditing in the non-profit sector; and (ii) test the generalisability of findings regarding the ARL from the for-profit sector to the non-profit sector. We note that ARLs for Belgian NPOs are substantially larger than those reported in prior studies based on for-profit firms, which can be explained by differences in reporting incentives (e.g. the absence of capital markets pressures). In addition to determinants of the ARL that have been identified in prior studies based on for-profit firms (e.g. auditor business risk), we find that also the way of funding the organisation (i.e. the degree of reliance upon donations and/or grants) and its specific area of activity are significantly related to the ARL. The requirement of an external financial statement audit (together with new accounting and financial reporting requirements) for Belgian NPOs was only recently introduced (i.e. from 2006 onwards). We do not observe a decrease in ARLs in the two years after the introduction of the new legal obligations.