Heaping in Reported Earnings: Evidence from Monthly Financial Reports of Taiwanese Firms

Heaping is a phenomenon in which reported numbers tend to appear in increments that are important for cultural or other reasons. This study reports that heaping is present in monthly earnings reports for publicly listed companies in Taiwan. We find that Taiwanese firms tend to report monthly earnings in increments of 5 in the first two places (digits) of the earnings numbers. Furthermore, we observe predominantly more zeros in the third through fifth places of monthly earnings numbers, suggesting that monthly earnings tend to be reported in increments of 10 in the first three, first four, and first five places. Reporting of monthly earnings in Taiwan is discretionary, and our findings suggest that managers of Taiwanese firms are susceptible to heuristic bias when reporting monthly earnings. These findings complement studies on heaping in U.S. financial markets documenting that managers and financial analysts tend to make earnings per share estimates that heap in increments of nickels.     

From complete exclusion to minimal inclusion: African Americans and the public accounting industry, 1965–1988

African Americans have always been severely under-represented among certified public accountants. After active exclusion for the first several decades of this century, in 1965 African Americans comprised only 0.1% of CPAs. Twenty-five years later, African Americans comprised close to 1% of CPAs, still far below their 12% representation in the population. This paper examines the accounting industry's response to the change in public expectations regarding equal employment opportunity that followed the civil rights movement. The study reveals that, in the late 1960s and early 1970s when support for equal opportunity was at its peak, the industry ended its complete exclusion and engaged in some visible efforts to recruit African Americans. However, even these minimal efforts waned with the decline in emphasis on fair employment in the 1980s.     

Leaning Against the Wind: Debt Financing in the Face of Adversity

We offer evidence of a new stylized feature of corporate financing decisions: the tendency of managers to rely more on debt financing when earnings prospects are poor. We term this “leaning against the wind” and consider three possible explanations: market timing, precautionary financing, and “making the numbers.” We find no evidence in favor of the first two hypotheses, and provisionally accept the making the numbers hypothesis that managers who are under pressure due to unrealistically optimistic earnings expectations by analysts and deteriorating real opportunities will rely more heavily on debt financing to boost earnings per share and return on equity.     

Currency Orders and Exchange Rate Dynamics: An Explanation for the Predictive Success of Technical Analysis

This paper documents clustering in currency stop‐loss and take‐profit orders, and uses that clustering to provide an explanation for two familiar predictions from technical analysis: (1) trends tend to reverse course at predictable support and resistance levels, and (2) trends tend to be unusually rapid after rates cross such levels. The data are the first available on individual currency stop‐loss and take‐profit orders. Take‐profit orders cluster particularly strongly at round numbers, which could explain the first prediction. Stop‐loss orders cluster strongly just beyond round numbers, which could explain the second prediction.     

The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century

Financial regulation was as hotly debated a political issue in the 19th century as it is today. We study the political economy of state usury laws in 19th century America. Exploiting the wide variation in regulation, enforcement, and economic conditions across states and time, we find that usury laws when binding reduce credit and economic activity, especially for smaller firms. We examine the motives of regulation and find that usury laws coincide with other economic and political policies favoring wealthy political incumbents, particularly when they have more voting power. The evidence suggests financial regulation is driven by private interests capturing rents from others rather than public interests protecting the underserved.     

Factor one: the next great war

This article is the first of four that will conclude the present series. One by one they will consider the principal factors that were responsible for creating the specific 19th century modes of writing about the future—the tales of the war-to-come, the organization of future societies, the certain triumph of man and mechanism, and the analysis of social trends and future possibilities. In this article I. F. Clarke looks at the ways in which the first industrial societies invented La Guerre qui vient, Der Zukunftskrieg, and The Next Great War—fictional devices dedicated wholly, solely and exclusively to showing the nation-states of the 19th century how the next war should, or should not, be fought.     

The Market's Valuation of Fraudulently Reported Earnings

This study examines the market valuation of accounting earnings during the period before it is publicly revealed that the earnings are fraudulent. Using both cross‐sectional and time‐series valuation models, we first find that the market accords less weight to earnings when the accounting numbers are fraudulent. We also show that the market better anticipates the presence of fraud when there is information in the public domain indicating a high ex‐ante risk of fraud. Our findings suggest that investors are able to accurately assess the probability of fraud and that such assessments affect the market's valuation of earnings even before it is publicly announced that fraud has occurred.     

THE TIME‐VARYING EQUITY PREMIUM AND THE S&P 500 IN THE TWENTIETH CENTURY

I present a new hindcast stock market index for the United States over the twentieth century. This is constructed by calibrating a rational asset pricing model that allows for a time‐varying equity premium driven by heteroskedasticity in consumption growth. By incorporating this variation in risk, the mean square error of the generated index series, when compared to the observed levels of the S&P 500, is significantly reduced. The model also explains the broad magnitudes and timings of the major bull and bear markets of the twentieth century, particularly before 1973, and the excess volatility puzzle is largely resolved.     

Railpolitik: The Financial Realities of Operating Britain's National Railways

This article analyses the context and financial performance of Britain's national railways under private ownership in the first half of the 20th century and public ownership in the second half of the century, in order to understand the problems confronting the railways and the implications for privatization. The evidence shows that Railtrack's collapse was inevitable: it is impossible for the railway industry to generate the revenue to cover the full cost of the infrastructure and services, including the financial claims of the providers of capital, without jeopardizing network performance. Privatization could not resolve the external constraints and the consequent financial problems. The final section considers the implications of this analysis for the future of the industry.     

The role of change agents and imitation in the diffusion of an idea: charge and discharge accounting

Medieval charge and discharge accounting was the most prevalent accounting system of its time. The first medieval charge and discharge system can be identified in the English Exchequer about 1110. This paper argues that the ideas behind the Exchequer were gradually diffused both internationally and nationally. This paper charts the export of charge and discharge systems to other European Exchequers, to monasteries and bishoprics, to lay estates, to manorial accounting, to guilds, boroughs, universities and parishes. From a single high status source at the start of the 12th century, charge and discharge accounting came to be imitated through mimetic and normative institutional isomorphism by a wide range of lower status medieval institutions by the late 15th century. In the first phase of diffusion, certain key individuals of wealth and power are identified as change agents. In the second phase, individuals, and accounting and estate management texts played an important role in the diffusion. The role of geographical proximity and accidents of history is also explored.     

国际货币基金组织的困境与改革探讨

国际货币基金组织自成立以来,在维持国际经济和金融稳定方面做出了重要贡献,但是面对21 世纪全球经济一体化所产生的巨大跨境资本流动、竞争优势的突变以及频繁发生的金融危机,其监督机制、借贷功能和治理结构等方面已不能满足新世纪世界经济形势变化的需要.本文在对国际货币基金组织代表性与全球经济发展之间的冲突、危机救济方式与目标之间的冲突、成为发达国家手中的工具与其独立性之间的冲突等困境分析的基础上,提出了国际货币基金组织改革的主要任务和核心内容,即保持国际金融稳定和国际收支的平衡,增加国际货币基金组织的普遍代表性,改革国际货币储备体系.     

Has competition in the Japanese banking sector improved?

This paper investigates whether competition in the Japanese banking sector has improved in the last quarter of the 20th century. By estimating the first order condition of profit maximization, together with the cost function and the inverse demand function, we found that competition had improved, especially in the 1970s and in the first half of the 1980s. The results fail to reject a Cournot oligopoly for city banks for most of the period, while they do reject it for regional banks for the overall period. This suggests that competition among city banks was stronger than that among regional banks.     

Comparisons of aggregate claim numbers and amounts: a study of heterogeneity

In this paper, we investigate how the heterogeneity among occurrence probabilities and claim severities affects the aggregate claim numbers and aggregate claim amount for an insurance portfolio. We show that higher heterogeneity (and dependence) among occurrence probabilities results in both smaller aggregate claim numbers and aggregate claim amount in the sense of the mean residual lifetime order. We also prove that as the heterogeneity among the claims increases, the aggregate claim amount increases in the sense of the usual stochastic order when the vector of occurrence probabilities is left tail weakly stochastic arrangement increasing. These theoretical findings are applied to (i) study ordering properties of convolutions of binomial random variables, (ii) provide upper bounds for the mean residual lifetime functions of the aggregate claim numbers and amount, and (iii) compare stop-loss premiums and risk capital of different insurance portfolios.     

Accounting research and researchers of the nineteenth century and the beginning of the twentieth century: an international survey of authors, ideas and publications

At the beginning of the nineteenth century the former glory of Italian accounting was overshadowed by its decline during the eighteenth century, and literature from France, England, Germany, America and other countries took centre-stage. 'Theories of accounts' (rather than 'accounting theories') dominated not merely the early but also the later part of this century when Italian accounting had regained a prominent position beside other countries. The relation of those theories to the 'charts of accounts'-which later became so prominent in Continental Europe is historically important. The controversies over personalistic versus materialistic accounts and that between entity versus proprietary theories, as well as the emergence of other theories are discussed with reference to individual authors. Diverse topics from railroad accounting and auditing to various aspects of cost accounting are investigated. Particularly important are the pioneering efforts of this period that anticipated further developments. These manifested themselves in the following ideas: entity theory, flow of funds statement, matrix accounting, different aspects of valuation, allocation and depreciation, price-level adjustments and indexation, current values, exit values, residual income valuation, managerial control, the emergence of competing accounting (and Bilanz) theories, the separation of fixed from variable costs, fixed and flexible budgeting, zero-based budgeting, PERT, transfer prices, break-even charts, variance analysis, job-order costing, labour and machine hour rates, standard costing, price determination, integrating financial and cost accounting, clean surplus theory, agricultural accounting, holding gains, and other topics. Appendix A offers an overview of Nineteenth century scholars concerned with accounting history (together with one representative work of each), and Appendix B lists the nationally (and often internationally) prominent names of accounting authors born in the nineteenth century but also or exclusively active during the twentieth century. The paper integrates approximately 400 publications of which less than half are of the English tongue.     

Financial crisis and accounting quality: Evidence from five European countries

This study investigates how the economic crisis affects the scope for earnings manipulation and the value relevance of reported financial numbers for companies that are audited by a big 4 auditor. The analysis is focused on Portuguese, Irish, Italian, Greek and Spanish listed companies. The findings show that Portugal, Italy and Greece tend to engage more in earnings management in their effort to improve their lower profitability and liquidity, and accommodate their higher debt and growth. Ireland exhibits less evidence of earnings manipulation, while the findings for Spain are to some extent conflicting. Additionally, the reported financial numbers of Portuguese and Greek companies that are audited by a big 4 auditor were found to be of higher quality before the crisis. In contrast, Irish, Italian and Spanish companies report more value relevant financial numbers during the crisis. The results of this study are particularly useful for accounting regulators when preparing accounting rules that seek to reduce information asymmetry and earnings manipulation and increase the quality of reported disclosures in light of a crisis and for investors that need further assistance for the establishment of a profitable investment strategy in periods characterized by high uncertainty and volatility.     

‘Different from What Has Hitherto Appeared on this Subject’: John Clark,Writing Master and Accomptant, 1738

This paper argues the importance, for the study of accounting history, of collecting evidence of accounting's past and of questioning its conventional wisdoms. It is known that Cronhelm (1818) explained in algebraic terms the mathematical relationship between assets, liabilities and capital reported in a balance sheet. It is also known that the balance sheet equation Assets (A) – Liabilities (L) = Capital (C) became a foundation for teaching bookkeeping as the twentieth century progressed. Current knowledge suggests that, during the first half of the twentieth century, this mathematical approach to teaching accounting gained a foothold in the United States based on the writings of Sprague and Hatfield, and also in Continental Europe. This paper reveals that, in the 1730s in England, John Clark cogently demonstrated an algebraically rooted understanding of the inter‐relationship between double entry bookkeeping and the structure of the balance sheet as exemplified by the above equation. The paper proves that journal‐oriented learning was not the exclusive training method employed by bookkeeping instructors during the early eighteenth century and raises the possibility that other teachers of bookkeeping were providing a more thoughtful education for aspiring clerks, bookkeepers, managers and businessmen than has hitherto been thought the case. This study also shows that accounting technologies do not continuously evolve towards their current state of elaboration, and that it is important for researchers to remain aware of plurality in patterns of accounting change and to be willing to embrace the full range of methodological approaches available for studying accounting phenomena.     

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.     

2000: the open century

After a century of wars and revolutions, will the twenty-first century tread the same path, or can we expect to move into a genuinely global century? Any determinist historical optimism or pessimism is groundless. The future of our world is open when we shun self-complacency, thus keeping an open mind to learn from contemporary science as well as from human history, both East and West. Then, we might be led to ask: is modern world civilization of the past three centuries not missing something in over-emphasizing material progress at the expense of the spiritual growth of humans? Present-day politicians are busy adjusting all sorts of domestic and international relations. However important these are, they cannot fulfil the entire mission of any modern society. Artists, scientists, those in various realms of the academy, in education and religious vocations, while helping ourselves and our posterity to seek the meanings of human existence, are bound together in our responsibilities to humanity for the twenty-first century.     

Linear Information Dynamics,Dividend Irrelevance,Corporate Valuation and the Clean Surplus Relationship

This paper adopts the linear information dynamics framework pioneered in Ohlson (1979) and Garman and Ohlson (1980) (and subsequently used in, in particular, Ohlson, 1989, 1995 and Feltham and Ohlson, 1995) for thinking about desirable properties of earnings numbers in the context of the market valuation of firms, where such valuations are fundamentally based on expected future dividends. The first purpose of this paper is to consider the valuation-relevance of clean surplus earnings when there are two distinct components of clean surplus earnings whose evolutions are governed, along with book value and dividends, by a system of linear information dynamics, and dividend irrelevancy holds. The system of linear information dynamics assumed ensures that corporate value is a linear combination of the two components of clean surplus earnings, book value and dividends. One question becomes—under what circumstances are clean surplus earnings (combined with book value and dividends) sufficient for corporate valuation without a knowledge of the breakdown of clean surplus earnings into its separate components? This paper develops the conditions defining these circumstances. At the other extreme, another question can be asked—under what circumstances is one component of clean surplus earnings irrelevant to corporate valuation? This paper identifies some conditions that identify these latter circumstances. The second purpose of the paper is to identify implications of these results for both the traditional arguments about the desirability of measuring earnings on a clean surplus basis and also the more contemporary issues surrounding FRS3. A third purpose is to discuss the implications of the overall analysis for the empirical testing of the relationship between market prices and earnings numbers, and for empirically-justified definitions of maintainable earnings.     

Commonwealth Convergence Toward a Narrower Scope of Auditor Liability to Third Parties for Negligent Misstatements

There have been fundamental shifts in the legal liabilities of auditors in the twentieth century. The article analyses myriad cases. It reveals that case rulings in the later decades moderated previous decisions that had resulted in an expansion of the scope of auditor liability. It shows that there has been a convergence in approach within Commonwealth nations in respect of auditor liability for negligent misstatements. Numerous factors are identified that explain, first the expansion of auditor liability in the early to middle decades of the twentieth century, and also its subsequent reversal in latter decades. The article concludes by arguing that the current positions not likely to remain. The decisions of the courts are shown to be the products of continual struggle to balance the respective rights and interests of auditors, investors (both current and prospective) and the wider community.