What does it mean to be green?

Today a company is not considered environmentalist unless it moves beyond mere compliance with government regulations to behavior its competitors, and even customers, do not expect. How should it set its agenda? Author Art Kleiner proposes that, to be green, a company must ask three questions: What products should we bring to market? How much disclosure of pollution information should we support? And how can we reduce waste at its source? These questions can't be answered, Kleiner says, unless managers insist on sustainable growth. In this sense, a big investment in environmentalism is like a big one in R&D--both presuppose patient capital and managerial maturity. What are green products? Kleiner cautions against giving in to misinformed public opinion--as McDonald's did in giving up its styrene "clamshells," which were more recyclable than the composite papers it switched to. Rather, companies should rely on literature that analyzes the product life cycle. As for public disclosure, the benefits may be unexpected. Federal legislation requiring companies to report the emission of potentially hazardous waste to a central data bank has not made environmentalists attack them. Rather, it has forced companies to learn what chemicals they inadvertently produce and how much--knowledge that helps them improve production processes. Sharing it helps ecological researchers study the combined effects of plant emissions. As for pollution prevention, Kleiner notes the analogy to quality and observes that it is better to design harmful waste products out of the system than catch them at the end of the line.(ABSTRACT TRUNCATED AT 250 WORDS)     

Market microstructure effects of government intervention in the foreign exchange market

As asymmetric information model of the bid - ask spread is developedfor a foreign exchange market subject to occasional governmentinterventions. Traditional tests of the unbiasedness of theforward rate as a predictor of the future spot rate are shownto be inconsistent when the rates are measured as the averageof their respective bid and ask quotes. Larger bid - ask spreadson Fridays are documented. Reliable evidence of asymmetric bid- ask spreads for all days of the week, albeit more pronouncedon Fridays, are presented. The null hypothesis that the forwardrate is an unbiased predictor of the future spot rate continuesto be rejected. The regression slope coefficients increase towardunity, however, indicating a less variable risk premium.     

The State of Sustainability in China

China has experienced remarkable economic growth since the reforms of Deng Xiaoping in the late 1970s. This growth has come at a significant environmental and social cost, raising the question of whether the country needs to focus more on sustainable development than on economic growth for its own sake. Moreover, there is growing recognition in China that more attention needs to be paid to achieving environmental and social as well as economic goals. This recognition has come in the form of changes in public policy, in pronouncements by Party leaders, and in the research and writings of academics, think tanks, and industry associations. As the authors also point out, sustainable development on a global scale is now as dependent on the actions of large corporations as on government policies. And one way of assessing China's commitment to sustainability is to compare the behavior of its largest 100 companies to that of the largest 100 corporations in the United States. In making this comparison, the authors use two, admittedly imperfect, indicators of sustainability that suggest that the extent of the commitment to sustainability is roughly comparable in both countries. The first of the two indicators is membership in the UN Global Compact. On that score, the authors report that exactly 15 of the top 100 companies in both China and the U.S. have formally endorsed its ten principles regarding human rights, labor, the environment, and anticorruption. The second indicator is the percentage of the largest 100 companies that produce a sustainability report based on the guidelines of the Global Reporting Initiative. Using that measure, the authors report that about half of China's largest companies produce a sustainability report based on the GRI guidelines. Although that percentage is smaller than the two‐thirds of U.S. companies that now provide such reports, the authors are encouraged by the trend, and by the pattern of adoption in which larger companies are clearly leading way.     

A characterisation of the methodology of qualitative research on the nature of perceived risk: trends and omissions

The issue of how risk is ‘perceived’ is one of significant research interest and immense practical importance. In spite of this wide interest, however, it is probably fair to say that most emerging ‘risk’ crises – whether related to natural or technological phenomena – come as a surprise to researchers and to society as a whole. Prediction of human responses to novel potential hazards (or novel manifestations of old hazards) is neither reliable nor complete; strategies to ameliorate inappropriate concerns when they arise (or to make realistic inappropriate absences of concern) do not appear totally effective. It therefore seems apt to ask the question: just what have we learned about ‘risk perception’? In this paper we conduct a structured review of qualitative research on perceived risk – to be followed by a subsequent analysis of quantitative research in a later paper – focusing upon methodological issues. Qualitative research often precedes quantitative research, and ideally informs it; it seeks depth and meaning from few subjects rather than identifying patterns within larger samples and populations. Without adequate qualitative research, quantitative research risks misanalysis of the target phenomenon, at the very least by the omission of relevant factors and inclusion of irrelevant ones. Our analysis here – of qualitative studies conducted across a range of disciplines, not all of which will be familiar to the readers of this journal – suggests that this research suffers from an incomplete coverage of the ‘risk perception universe’, typified by a focus on atypical hazards and study samples. We summarise the results of this research, while pointing out its limitations, and draw conclusions about future priorities for research of this type.     

Aggressive CEOs and bank mergers and acquisitions

The U.S. banking industry has seen waves of mergers since the 1980s. Despite a significant body of research on the determinants of these waves, there are few studies of how CEOs influence banks’ mergers and acquisitions (M&As). This paper studies the effect of CEO aggressiveness on bank M&As. We construct a new measure of bank CEO aggressiveness based on CEOs’ ancestral countries of origin and data on inter-country wars. We find that aggressive CEOs are more likely to acquire other banks. Moreover, the impact of CEO aggressiveness on bank M&A decisions is more pronounced when the CEOs are from larger and more profitable banks, when CEOs have a longer tenure, and when CEOs’ ancestral country of origin has a more masculine culture. Moreover, we show that aggressive CEOs are more likely to make acquisitions when CEOs possess more cultural maintenance, which captures the extent to which CEOs retain their original cultural values and beliefs. Finally, we document positive short-term stock market reactions to bank M&As initiated by aggressive CEOs.     

Anticipating transitions beyond the current mobility regimes: How acceptability matters

Today's car-based transportation systems require a transition toward sustainability. This is particularly the case in suburban areas, where the costs for introducing a new transportation system are high due to the low population density. At the same time the negative externalities of the current mobility regime – such as health costs and congestions – are increasing rapidly. Based on expert interviews with car manufacturers, transportation authorities, environmental groups, and scientists we identify two visionary characteristics of future, more sustainable transportation systems: automated driving and sharing. Using these two characteristics, we apply the scenario-axes technique to develop four mobility scenarios for a suburban context that range from business-as-usual to a radical and more sustainable one. In an evaluation with ten criteria that measure a scenario's performance from a user perspective, the radical scenario performs worst since it does not meet current individualistic user requirements. Our findings suggest that lock-ins of users’ expectations act as barriers for the diffusion of novel transportation systems. These barriers cannot be overcome by technological innovations and regulation alone. Hence, we call for innovative arenas, wherein technology and user acceptability could co-evolve.     

Bridging Sustainability and Finance: The Value Driver Adjustment Approach

Even though most large corporations view sustainability considerations and concerns as having the potential to affect their revenue and profits, and studies have shown that sustainability can affect stock returns, investors and corporate managers continue to struggle to incorporate such concerns into their financial decision‐making. As a consequence, the valuation effects of sustainability issues are not fully reflected in either the valuation of companies by investors or in capital investment decisions by corporate managers. The author argues that sustainability can be integrated into both of these kinds of financial decision‐making by linking it to business models, competitive positions, and value drivers using what the author calls a “value‐driver adjustment” (VDA) approach. The basic idea is simple: material sustainability issues affect business models and competitive positions, which in turn affect the company's value drivers—notably, sales, margins, and capital. The VDA approach explicitly considers these linkages by taking three steps: (1) identifying a company's material sustainability issues; (2) analyzing how these issues are expected to affect the company's business model and competitive position; and (3) quantifying the effects of such changes in business model and competitive position on the company's value drivers, including its cost of capital. In the first part of the article, the author provides an investor perspective that shows how sustainability can be integrated into investment decisions by asset managers. There he explains how and why ESG integration has so far failed to become mainstream, and what needs to be done to make it successful. The second part of this article takes the corporate perspective and shows how sustainability can be linked to value drivers using much the same ingredients as in asset management, but slightly different tools that can help corporate managers incorporate sustainability concerns into strategy and operations, including the finance function. And in closing, the author brings together corporate and investor perspectives while showing how sustainability programs can be used to make the relationship between companies and their shareholders both stronger and longer‐lasting.     

Asset pricing theory for two price economies

We show that nonlinearly discounted nonlinear martingales are related to no arbitrage in two price economies as linearly discounted martingales were related to no arbitrage in economies satisfying the law of one price. Furthermore, assuming risk acceptability requires a positive physical expectation, we demonstrate that expected rates of return on ask prices should be dominated by expected rates of return on bid prices. A preliminary investigation conducted here, supports this hypothesis. In general we observe that asset pricing theory in two price economies leads to asset pricing inequalities. A model incorporating both nonlinear discounting and nonlinear martingales is developed for the valuation of contingent claims in two price economies. Examples illustrate the interactions present between the severity of measure changes and their associated discount rates. As a consequence arbitrage free two price economies can involve unique discount curves and measure changes that are however specific to both the product being priced and the trade direction. Furthermore the developed valuation operators call into question the current practice of Debt Valuation Adjustments.     

Measuring the future : Statistics and the information age

If the information age is to be more than a slogan, we need to address the issue of how to measure its emergence, and how to assess developments within it. This may well pose challenges to our existing statistics-,since structural change can render established definitions and frameworks inadequate. So far, most discussion of this issue has been conducted within a tradition of counting up the ‘information workforce’. This article argues for a different approach, focusing on the generation, diffusion and application of new information technology (IT). It considers how far available statistics can be used to throw light on IT-related developments, provides some examples of what these data tell us about possible future developments, and examines the implications for the future of statistical frameworks and statistical analysis itself.     

Is accounting for sustainability actually accounting for sustainability…and how would we know? An exploration of narratives of organisations and the planet

The emergence of sustainable development as the complex notion through which social and environmental issues must be addressed – whether at policy, personal or organisational levels – has had a growing influence in the accounting literature. In addition to explorations of what sustainability may mean for accounting and finance, we have experienced a growth in both critiques of sustainability reporting (sic) and in experiments and speculations on how accounting for sustainability might advance. This growth – as with social and environmental accounting before it – has very properly attracted critique. One convergent theme in that critique has been a challenge that much of the realist and procedural baggage associated with conventional accounting is no longer apposite when seeking to account for sustainability. What may be required, is a more nuanced understanding of what ‘sustainability’ actually is and how, if at all, it can have any empirical meaning at the level of the organisation. This essay seeks to initiate an auto-critique of accounting for sustainability via an examination of meanings and contradictions in sustainable development which, in turn, leads towards a suggestion for the development of multiple and conditional narratives that whilst no longer realist or totalising, explicitly challenge the hegemonic claims of business movements in the arena of sustainability and sustainable development.     

EVA,not EBITDA: A New Financial Paradigm for Private Equity Firms

Private equity firms have boomed on the back of EBITDA. Most PE firms use it as their primary measure of value, and ask the managers of their portfolio companies to increase it. Many public companies have decided to emulate the PE firms by using EBITDA to review performance with investors, and even as a basis for determining incentive pay. But is the emphasis on EBITDA warranted? In this article, the co‐founder of Stern Stewart & Co. argues that EVA offers a better way. He discusses blind spots and distortions that make EBITDA highly unreliable and misleading as a measure of normalized, ongoing profitability. By comparing EBITDA with EVA, or Economic Value Added, a measure of economic profit net of a full cost‐of‐capital charge, Stewart demonstrates EVA's ability to provide managers and investors with much more clarity into the levers that are driving corporate performance and determining intrinsic market value. And in support of his demonstration, Stewart reports the finding of his analysis of Russell 3000 public companies that EVA explains almost 20% more than EBITDA of their changes in value, while at the same time providing far more insight into how to improve those values.     

Measuring What Matters: Industry Specificity Helps Companies and Investors Gain Traction on Sustainability

Financial analysts interpret the performance of companies and their securities through an industry lens. Just as an industry approach is critical in financial analysis, it's also critical in helping investors evaluate sustainability performance, since sustainability issues differ from one industry to the next—in large because of differences in how companies use natural and other social resources when bringing their goods and services to market, and how they impact society and the environment in the process. The Sustainability Accounting Standards Board (SASB) was created in 2012 to deliver a full set of sustainability accounting standards that can be used to guide industry‐specific corporate sustainability disclosure to the capital markets. SASB has now issued provisional standards for 79 industries, thereby enabling companies and investors for the first time to identify patterns of sustainability risks and opportunities both across and within industries. Although high‐level issues such as climate change, product safety, and resource intensity and scarcity have material impacts across a variety of sectors, those impacts often vary greatly from one industry to the next. Thus, although the risk may be ubiquitous, it is also differentiated to the point that each industry has its own distinct sustainability profile. Understanding these unique profiles can help companies better manage the issues that are most likely to present material risks to their industries.     

The determinants of the price impact of block trades: further evidence

This article extends previous literature which examines the determinants of the price impact of block trades on the Australian Stock Exchange. As previous literature suggests that liquidity exhibits intraday patterns, we introduce time of day dummy variables to explore time dependencies in price impact. Following theoretical developments in previous literature, the explanatory power of the bid–ask spread, a lagged cumulative stock return variable and a refined measure of market returns are also examined. The model estimated explains approximately 29 per cent of the variation in price impact. Block trades executed in the first hour of trading experience the greatest price impact, while market conditions, lagged stock returns and bid–ask spreads are positively related to price impact. The bid–ask spread provides most of the explanatory power. This suggests that liquidity is the main driver of price impact.     

Finance and sustainability: From ideology to utopia

This paper is based on the observation that there is a contradiction between the current demands for sustainability and the way the financial system works. Beginning with a discussion of the epistemological assumptions underlying financial theory, it seeks to show how it may be viewed as an Ideology for the financialization of economies and societies. We use the Ricoeurian notion of the cultural imagination to develop a counterpoint Utopia, which we call Finance As A Common. The reflexivity enabled by this Utopia reveals the mental structures in which financial actors are embedded. It also allows us to plot possible pathways for the reconstruction of the financial system, including local currencies, and the renewal of financial knowledge.     

Subtle world: Beyond sustainability, beyond information

A number of authors have examined the relationship between sustainability and information technology, most acknowledging that the connection is complex and problematic. In this essay, we revisit aspects of the debate and explore the relationship between sustainability and information at a fundamental level. We argue that the connection should be approached with caution and skepticism since it does little to address or edify the challenges of the ecological crisis. We conclude by exploring the shapes of a different, and hopefully more productive, kind of discourse.     

Current account sustainability in the US: What did we really know about it?

We analyze the sustainability of the US current account (CA) deficit by means of unit-root tests. First, we argue that there are several reasons to believe that the CA may follow a non-linear mean-reversion behavior under the null of stationarity. Using a non-linear ESTAR model we can reject the null of non-stationarity favoring the sustainability hypothesis. Second, we ask whether unit-root tests are a useful indicator of sustainability by comparing in-sample results for the 1960–2004 period to the developments observed up to the end of 2008. We find that the non-linear model outperforms the linear and random walk models in terms of forecast performance. The large shocks to the CA observed in the last five years induced a faster speed of mean reversion, ensuring the necessary adjustment to meet the inter-temporal budget constraint.     

东亚三国的公共养老金制度改革：名义账户制的应用前景评析

在人口老龄化形势下,东亚国家的老年人口赡养率迅速攀升。如何改革公共养老金制度,建立与人口、经济社会形势相适应的养老保障体系,是摆在这些国家面前的一个难题。本文将比较中国、韩国和新加坡的公共养老制度,探讨名义账户制（NDC）在三国的应用前景。通过分析名义账户制化解各国现实问题的潜在能力,作者认为中国适用名义账户制的可行性最强,新加坡较低,而韩国介于二者之间。     

Lies,Damn Lies,and Statistics: Why a Widely Used Sustainability Metric Fails and How to Improve It

Most of the world's major corporations now publicly report their sustainability performance for a number of key parameters, such as water use, greenhouse gas (GHG) emissions, and waste generated. The metrics most often used to track progress are “total inventory” (for example, the total liters of water used, or the total tons of GHGs emitted) and average intensity (total liters of water used per ton of product or per $1 million revenue). Because average intensity is normalized for the company's level of business activity, it is commonly presented and viewed as a measure of the company's actual year‐to‐year efficiency. But average intensity is often not a reliable measure of a company's true performance in sustainability. An improvement in efficiency requires a company to consume fewer resources or generate less waste in delivering a specified unit measure of goods or services. This article demonstrates that, although efficiency directly contributes to average intensity, the measure is influenced by a number of confounding factors that make the change in average intensity a potentially misleading indicator of improvements in efficiency. The authors present a more reliable measure of changes in efficiency—one that is likely to benefit corporate managements as well as users of sustainability data—that makes use of flexible budgeting techniques. Examples are provided that illustrate Bacardi Limited's application of the sustainability efficiency metric for external sustainability reporting.     

Accounting and sustainable development: An exploration

As the social and environmental impacts of human activity have become more evident, the role of sustainable development as an organising principle in a variety of policy contexts and over multiple scales has become central. There are, at least, two implications that emerge from this observation. First, morally infused problems that need to be addressed have become more intractable, requiring innovation in our modes of thinking. Second, new spaces have emerged where the academy might explore how knowledge is created, validated and translated (or not) alongside policy and practice settings. One outcome of these trends has been the emergence of a stream of work (sustainability science) which investigates how disciplines might develop knowledge that progresses sustainable development. The aim of this paper, in line with the focus of the special issue, is to explore what possibilities emerge for accounting in light of a sustainability science approach. To achieve this end the paper starts with an exploration of the frustrations expressed in the literature over the perceived lack of progress made by social and environmental accounting towards addressing sustainable development. The paper then introduces sustainability science with the aim of imagining how an accounting for sustainable development might emerge. The paper closes with two illustrations of how a sustainability science approach to accounting could develop.     

Making nonroutine decisions--what cost measure is appropriate?

It would be simple if there were just one correct measure of cost. Unfortunately, every time we use cost information, the most important thing we do is determine which costs are appropriate for answering the question that has been asked. The degree of accuracy in calculating those costs will have to depend on how valuable the information is. The more important it is to have very accurate information, the more effort should be made to get such information. However, we cannot even begin the process of cost measurement until we have defined which costs to measure. In routine management, we have taken the time to refine the definition of what cost information is appropriate for the efficient running of ongoing activities. In the area of nonroutine decisions, however, everything is new. It is therefore critical for managers to spend some time thinking about which things really will change as a result of the change. Only those factors should enter into the calculation.