THE PERFORMANCE OF BANK‐MANAGED MUTUAL FUNDS

The ability of banks to offer proprietary mutual funds has expanded over recent years, and the mutual fund industry has been a significant growth area for banks. I examine the growth and performance of bank proprietary bond mutual funds. The empirical results show no evidence that bank‐managed mutual funds underperform nonbank funds. I find some evidence that bank managers are more conservative than nonbank managers in terms of investment strategy and that banks appear more likely to target individual rather than institutional investors. Also, I find that abnormal fund performance does not appear to be a significant determinant of the net asset flows into and out of bank‐managed mutual funds. Rather, the results suggest bank investors rely mainly on past marketing information and the general reputation of the bank. JEL classification: G11, G21     

The great war that never was — 1871–1914

I.F. Clarke concludes his two-part study of the forecasts of future warfare in the half-century before the outbreak of World War I. He argues that the experts failed to foresee trench warfare and the long stalemate on the Western Front, precisely because they were experts, and that the devastating effects of the new military technologies ended the old-style belief in the uninterrupted forward march of mankind.     

IMPLEMENTING THE BALANCED SCORECARD: A COMPARATIVE STUDY OF TWO SPANISH CITY COUNCILS – AN INSTITUTIONAL PERSPECTIVE

The present study seeks to describe and compare the implementation of the Balanced Scorecard model in two Spanish city councils. It builds on two major theoretical approaches to Institutional Theory: New Institutional Sociology and Old Institutional Economics, that have both been applied to the study of changes in management accounting. In one of the organisations the use of the BSC was largely symbolic. In the other, a process of creating new accounting routines started to take root. Our findings suggest that new rules, implemented in conjunction with existing organisational routines, have a greater chance of gaining acceptance.     

AN ANALYSIS OF SUBMISSIONS TO THE ASRB ON RELEASE 411 ‘FOREIGN CURRENCY TRANSLATION—QUESTIONNAIRE’

This study examines the accounting method preferences of the managers of firms who made submissions to the ASRB on Release 411 ‘Foreign Currency Translation— Questionnaire’. Content analysis of the actual submissions is used to obtain a measure of the strength of accounting method preferences indicated therein. This aspect of the study combats criticism of previous studies in relation to the oversimplification associated with the dichotomous categorisation of accounting method preferences. The results of the study also provide some support for this criticism of earlier research. Overall, the study provides some evidence that accounting method preferences for foreign currency transactions are made in an attempt to maximise the value of the firm.     

Skinner's “Interpretation Panel”— A Means to Balance “Power”

The rules versus principles debate and the vital importance of context ‐ the circumstances‐specific nature of judgment ‐ are at the heart of Ross Skinner's suggestion for an “interpretation panel". International considerations and developments involving governance and regulation have created imbalances in power, expertise, and impartiality, increasing the importance of and need for such a panel. This analysis considers the nature of the problem, how professional judgment has been characterized, and why a panel would be appropriate to address, among other concerns, the audit committee's dilemma when accounting disputes arise. Evidence is provided that management turnover is higher in cases involving multiple restatements, governance problems, or regulators' sanctions. Although, intuitively, management turnover is likely to be associated with widely publicized restatements, some patterns suggest that it is a function of entity size, scope of management changes considered, and the manner in which the restatement was identified. Specifically, an identifiable source of discovery, as well as external involvement, is associated with a greater propensity for management change. In contrast, restatements linked to changes in available guidance from regulators are less likely to result in such turnover. One implication is that effective control design and monitoring to facilitate internal discovery of errors can decrease the likelihood of multiple restatements and reduce fault finding that leads to management change. The judgmental nature of restatements suggests that an infrastructure supporting “right‐mindedness” does have merit. An interpretation panel would increase the feasibility of principles‐based standards, facilitating timely resolution of accounting‐associated disputes and thereby enhancing the information environment underlying the allocation of capital.     

ESTIMATING RETURNS ON FINANCIAL INSTRUMENTS — STOCHASTIC ANALYSIS

The present paper addresses the problem of estimating returns on financial instruments when there is incomplete information about the instrument's cash flows. However unlike previous work in this area, it is assumed that the financial instrument's cash flows may be modelled as a stochastic function of time. This implies that the estimation error is a random variable and as a consequence, probability assessments can be made as to its likely magnitude. Using these procedures it is shown that traditional estimating methods considerably overstate actual returns. Further, it is also shown that returns are far from normally distributed. Given these results, it is doubtful whether any credibility can be attached to the standard two parameter methods of evaluating investment performance.     

ESTIMATING RETURNS ON FINANCIAL INSTRUMENTS — DETERMINISTIC ANALYSIS

The present paper addresses the problem of estimating returns on financial instruments when there is incomplete information about the instrument's cash flows. The problem is shown to resolve itself as an exercise in numerical analysis. In theory, the true return is obtained as the solution of an integral equation, but since the required functions are incompletely specified, numerical estimating techniques must be applied. Alternative numerical methods are examined, each of which make different assumptions about the time series properties of the financial instrument's cash flows. It is shown that the estimated returns are highly sensitive to these assumptions and thus to the numerical technique used.