Can we control health care costs?

The health care system will never go bankrupt, the author of this article asserts. But the expense of maintaining it is putting such a strain on our resources that bankruptcy sometimes seems not so far off. The controls and devices we use, like certificate-of-need requirements and health management organizations, obviously have not slowed the rise in costs. We need to focus our attention on three elements in the picture that can do the most about curbing expenditures: the health care administrator, the physician, and the business organization (the labor union as well as the corporation). The author offers suggestions for action from these quarters.     

Do UK firms manage earnings to meet dividend thresholds?

This paper examines earnings management by dividend-paying firms in cases where pre-managed earnings would fall below the expected dividend, and by non-dividend paying firms aiming to avoid reporting losses. We find that within the UK market the likelihood of upward earnings management is significantly greater in the former case than the latter, though both are drivers for earnings management. Large firms are less likely to upwardly manage earnings to reach dividend thresholds, consistent with prior UK evidence on the ability of the largest firms to avoid restrictive debt covenants. We also find that earnings management is more clearly observable through examining working capital discretionary accruals than through examining total discretionary accruals.     

XBRL to enhance external financial reporting: Should we implement or not? Case Company X

The growing use of eXtensible Business Reporting Language (XBRL) represents a fundamental change for financial information flows. In a number of countries XBRL has already been put to practical use, for instance through implementation within the financial processes of non-listed companies. This fictional case is designed to help identify the benefits of XBRL. In addition, it helps to create knowledge about the different strategies of XBRL implementation and to apply this knowledge when making investment decisions on accounting information processes.     

Can CFOs resist undue pressure from CEOs to manage earnings?

Building upon the premise that, under certain conditions, the ability of the Chief Executive Officer (CEO) to pressure the Chief Financial Officer (CFO) is limited, we develop a measure of CFO resistance that captures the ability of the CFO to resist undue pressure from the CEO to manage earnings. In doing so, we consider various sources of power for both the CEO and CFO, and a market setting where CFO resistance is perceived to be high. We find that firms with resistant CFOs are less likely to engage in earnings management than firms with non-resistant CFOs, ceteris paribus. Additionally, while confirming prior evidence that CEOs with strong incentives are more likely to manage earnings, we show that this effect is significantly less pronounced in the presence of resistant CFOs. Overall, our findings suggest that firms can improve the quality of financial reporting by creating conditions that enable CFO resistance.     

Do firms use the trade credit channel to manage growth?

While many theories of accounts payable and receivable are related to firm performance, there has not been a direct test whether firms actively use them to manage their growth. We argue that it is not just the accounts payable but also the accounts receivable that matter. While the former help to alleviate imperfections in the financial market, the latter do so in the product market. Using over 2.5 million observations for 600.000 firms in 8 euro area countries in the period 1993–2009, we show that firms use the trade credit channel to manage growth. In countries where the trade credit channel is more present, the marginal impact is lower, but the total impact is still higher. Further, firms that are more vulnerable to financial market imperfections, rely more on the trade credit channel to manage growth. Finally, we show that also the overall conditions of the financial market matter for the importance of the trade credit channel for growth.     

Do insurers use internal capital markets to manage regulatory scrutiny risk?

Empirical evidence suggests that insurance groups allocate capital to members with better performance or growth prospects and use internal capital markets (ICMs) to protect the franchise value of less capitalized members. We propose and test an additional motivation for the use of ICMs—to manage regulatory scrutiny risk. We show that almost 50% of insurers at risk of facing additional regulatory scrutiny due to failing four Insurance Regulatory Information System (IRIS) ratios received sufficient internal capital to avoid enhanced regulation. Moreover, the likelihood and extent of internal capital allocation are related to regulatory scrutiny risk and the amount of capital allocated is typically just enough to avoid regulatory scrutiny. Time series evidence indicates that groups manage regulatory scrutiny risk by allocating capital toward affiliates when their pre-capital contribution IRIS ratio failures exceed three, and away from affiliates when they are no longer at risk of additional regulatory scrutiny.     

Where do firms manage earnings?

Despite decades of research on how, why, and when companies manage earnings, there is a paucity of evidence about the geographic location of earnings management within multinational firms. In this study, we examine where companies manage earnings using a sample of 2,067 U.S. multinational firms from 1994 to 2009. We predict and find that firms with extensive foreign operations in weak rule of law countries have more foreign earnings management than companies with subsidiaries in locations where the rule of law is strong. We also find some evidence that profitable firms with extensive tax haven subsidiaries manage earnings more than other firms and that the earnings management is concentrated in foreign income. Apart from these results, we find that most earnings management takes place in domestic income, not foreign income.     

How did the Welsh government manage to reform council tax in 2005?

Repeated calls have been made for council tax (CT) in the UK to be reformed. A ‘tyranny of the status quo’ suggests that politicians will avoid this because they fear a backlash from the losers of reform. This paper claims that the tyranny of the status quo is not a fixed law. The Welsh government revalued CT in 2005 but did not communicate the complexity of reform sufficiently. Reform requires greater efforts to communicate the complexity of winning and losing.     

To fear or not to fear? Applying the social amplification of risk framework on two environmental health risks in Singapore

Abstract

Smoke haze and dengue fever seasons were nationwide environmental health risk events that plagued Singapore between April and June 2013. Although relatively harmless compared to dengue fever, people in Singapore were visibly more disturbed by smoke haze. They engaged in preventive behaviors such as frantic purchasing of protective masks or staying indoors most of the time. Such reactions hint at the possibility of the social amplification of risk, a term coined to explain irrationally high public concerns over relatively minor risk issues, due to the visible nature of the risk event or people’s reactions to it. The current study aims to confirm the social amplification of risk for the haze event, as well as to test for the underlying reasons behind this phenomenon. Among the antecedents explored were the influence of information channels (traditional media and social media) on risk perception, negative affect, information seeking, and information sharing on the enactment of preventive behaviors. Data were collected from a sample of 343 college students through an online questionnaire. Results supported the presence of social amplification of risk for the haze event, and social media exposure was found to overshadow the influence of traditional media exposure on risk perception, negative affect, information seeking, information sharing, and preventive behaviors.     

What have we learnt about joint working between health and social care?

Joint working between local authorities and the National Health Service (NHS) has been an integral part of health and social care policy in the United Kingdom for many years. Using evidence from two literature reviews this paper argues that there is little indication that joint working delivers the outcomes envisaged in policy. While recent reforms may be beginning to influence improvements, they are undermined by constant reform and professional scepticism.     

Do hedge funds dynamically manage systematic risk?

Defining systematic risk management (SRM) skill as persistently low fund systematic risk, we find evidence of time varying allocation of hedge fund management effort across the business cycle. In weak market states, skilled managers focus on minimization of systematic risk via dynamic reallocations across asset classes at the cost of fund alpha and foregoing market timing opportunities. As markets strengthen, attention shifts to asset selection within consistent asset classes. The superior performance of low systematic risk funds previously documented arises due to the superior asset selection ability of managers in strong market states. Incremental allocations by investors arise due to this superior performance and not due to recognition of SRM skill.     

Commissioning and GPs: to commit[tee] or not?

Clinical commissioning groups (CCGs), part of the UK's National Health Service (NHS) since April 2013, are complex organizations requiring buy-in by GPs for strategic success. CCG budgetary deficits and lack of sustained engagement by GPs are a problem. This paper utilizes evidence of GP experience in commissioning models to determine the factors that may influence engagement in the governance of CCGs by GPs, which is crucial if clinically-led commissioning is to be part of a financially sustainable NHS.     

Do firms that wish to be acquired manage their earnings? Evidence from major European countries

In this paper, we examine whether findings on downward accrual-based earnings management for firms publicly ‘seeking a buyer’ from the US can be extrapolated outside of the US context, given that past research has indicated that the function of the Merger and Acquisition (M&A) markets is highly dependent on the degree of competition in a country. We test for the existence of earnings management (EM) around such events for firms listed in the largest European stock exchanges between 2000 and 2009, and get evidence that downward earnings management around ‘seeking buyer’ announcements more strongly holds for the country with the most competitive market for corporate control in our sample, that is the UK. We consider this finding indicative of the fact that a competitive M&A environment may induce earnings management-prone behavior. We further testify significantly positive abnormal returns around ‘seeking buyer’ announcements for firms from the UK, but limited such evidence for the other countries, a finding we also attribute to differences in competition and uneven split of benefits among bidders and targets in M&A markets. Finally, we find that EM positively affects abnormal returns around ‘seeking buyer’ announcements, indicating that market participants tend to compensate for upward EM, regardless of the degree of competition of the M&A market of a country.     

Keeping secrets? Or what government performance auditors might not need to know

This paper examines the claims made in a recent paper in Critical Perspectives on Accounting by Vaughan Radcliffe about the way in which public sector auditors report their findings. Drawing upon the work of Taussig, he argues that while public sector auditors may know the truth, as may others, they choose not always to tell the truth in their reports and instead to treat what may be publicly unpalatable as a public secret. They modify their findings to ensure that these will be more acceptable to governments and, thereby, enhance their opportunity to influence government. These claims are shown in this paper to overstate the public sector auditor's response to difficult issues. Rather than keeping secrets, the contents of the auditor's reports may instead reflect the constitutional and institutional limitations in which they must work. Most importantly in most jurisdictions they are not to comment on matters of policy which are the domain of the government.     

Do corporations manage earnings to meet/exceed analyst forecasts? Evidence from pension plan assumption changes

A significantly larger number of firms increase the expected rate of return on pension plan assets (ERR) to make their reported earnings meet/exceed analyst forecasts than would be expected by chance. In the short run, the stock market reacts positively to these firms’ earnings announcements, suggesting that investors fail to recognize that earnings benchmarks are achieved through ERR manipulation. In the long run, however, firms that employ this earnings management strategy significantly underperform control firms in both stock returns and operating performance.     

To buy or not to buy? The value of contradictory analyst signals

We study the predictive ability of individual analyst target price changes for post-event abnormal stock returns within each recommendation category. Although prior studies generally demonstrate the investment value of target prices, we find that target price changes do not cause abnormal returns within each recommendation level. Instead, contradictory analyst signals (e.g., strong buy reiterations with large target price decreases) neutralize each other, whereas confirmatory signals reinforce each other. Further, our analysis reveals that large target price downgrades can be explained by preceding stock price decreases. However, upgrades are not preceded by stock price increases, thereby demonstrating asymmetric analyst behavior when adjusting target prices to stock prices. Our results suggest that investors should treat recommendations with caution when they are issued with large contradictory target price changes. Thus, instead of blindly following a recommendation, investors might put more weight on the change in the corresponding target price and consider transaction costs.     

The demise of community banks? Local economic shocks are not to blame

The number of US community banks is falling rapidly. Is this reduction being driven in part by banks’ desire to geographically diversify to reduce their vulnerability to local economic shocks? A comparison of the performance of banks in counties that suffered economic shocks in the 1990s with similar banks in counties that did not suffer economic shocks shows that banks withstand local economic shocks quite well. This result suggests that the geographic concentration risk that community banks must bear to focus on relationship lending is small and is not an important factor contributing to the decline of community banks.     

CEO and board chair roles: To split or not to split?

We examine the performance and compensation implications of firms' decisions to combine the roles of CEO and board chairman (duality). We document that firms that split the CEO and chairman positions due to investor pressure have significantly lower announcement returns and subsequent performance, and lower contributions of investments to shareholder wealth. Further, these performance outcomes are more negative for firms with higher predicted probabilities of duality based on a model of economic determinants of board leadership structure. We also find that pay-performance sensitivity in CEO compensation contracts are significantly lower following a split in the CEO and chairman positions, and significantly higher following a combination in these positions. Our evidence suggests that on average, board leadership choices by firms and market responses are consistent with efficiency arguments, and recent proposals for all firms to separate the CEO and chairman roles warrant more careful consideration.