Factors affecting biasing of capital budgeting cash flow forecasts: evidence from the hotel industry

This study contributes to a neglected aspect of the capital budgeting process, namely, the proposal development stage, which is primarily concerned with project cash flow estimation. Given that the deployment of sophisticated selection techniques is severely undermined when directed to input data suffering from bias, it is surprising that minimal empirical research has sought to explore for antecedent factors associated with biasing of capital budgeting cash flow forecasts. This paper reports the findings of a survey concerned with determining factors associated with biasing of capital budget cash flow forecasts in hotels that are mediated by a management contract. Statistically significant support is provided for the view that higher levels of biasing of capital budget cash flow forecasts occur in the presence of: high emphasis attached to the payback investment appraisal method; deficient reserve funds for furniture, fittings, and equipment (FF&E); low operator accessibility to reserve funds for FF&E; shorter periods of time to management contract expiry; and high emphasis attached to non-financial factors in capital budgeting appraisal.     

The effects of shifts in monetary policy and reserve accounting regimes on bank reserve management behavior in the federal funds market

This paper looks at the effects on Fed fund rates and Fed fund purchasing behavior of large banks resulting from (i) the 1982 regime switch from non-borrowed to borrowed reserve targeting by the Fed and (ii) the 1984 switch from lagged to almost contemporaneous reserve accounting (CRA). Whether we analyse changes in the interest-rate or quantity dimensions, the shift in monetary policy targets appeared to have had a more profound effect on the market for bank reserves than the shift in reserve accounting regime. These results, therefore, tend to support the contention that a shift to CRA by itself will have little effect on bank reserve management behavior unless combined with its logical counterpart — a total reserves target.     

Boom and Gloom

We study the performance of investments made at different points of an investment cycle. We use a large data set covering hotels in the United States, with rich details on their location, characteristics, and performance. We find that hotels built during hotel construction booms underperform their peers. For hotels built during local hotel construction booms, this underperformance persists for several decades. We examine possible explanations for this long‐lasting underperformance. The evidence is consistent with information‐based herding explanations.     

Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?

We examine whether public disclosures of tax reserves recently made available through Financial Interpretation No. 48 (FIN 48) reflect corporate tax shelter activities. Understanding this relation is important to corporate stakeholders and researchers keen to infer the aggressive nature of a firm's tax positions from its tax reserve accrual. Our study links public disclosures of tax reserves with mandatory private disclosures of tax shelter participation as made to the Internal Revenue Service's Office of Tax Shelter Analysis. We find strong, robust evidence that the tax reserve is positively associated with tax shelters, while other commonly used measures of tax avoidance are not. Based on out‐of‐sample tests, we also show that the reserve is a suitable summary measure for predicting tax shelters. The tax benefits of tax shelters are economically significant, accounting for up to 48% of the aggregate FIN 48 tax reserves in our sample.     

International harmonization of Japanese accounting standards

Historically, Japanese accounting standards have been quite distinct from International Accounting Standards (IASs) which have been perceived as being modelled on British-American accounting standards. However, in the 1990s, after the publication of E32 in 1989 and the IASC-IOSCO Agreement in 1995, the Business Accounting Deliberation Committee (BADC), the standards-setting body in Japan, has pursued a policy of harmonization with IASs. Accounting standards relating to consolidated financial statements of companies that make cross-border offerings of securities or operate worldwide are being revised drastically. This paper focuses on the development of international accounting harmonization and its impact on Japan.     

Accounting and the management of outsourcing: An empirical study in the hotel industry

Interview and survey data have been collected to study the nature and antecedents of accounting systems involved in hotel outsourcing decision-making and control. It has been found that there is considerable cross-hotel variation in the degree of accounting system involvement in outsourcing management. Performance and whether outsourcing decisions are made in the context of a long-term strategic agenda, appear to be variables affecting both the nature of accounting involvement and the degree of accounting sophistication in hotel outsourcing management. Hotel quality was also a significant factor affecting the degree of accounting sophistication in hotel outsourcing. It appears that accounting appraisal of outsourcing proposals rarely include long-term oriented sophisticated techniques such as the discounting of future cash flows. It is conjectured that this may be because outsourcing decisions are not conducted in the context of the formal capital budgeting process.     

论唐山经济趔酒店品牌建设

2009年快捷酒店开始走俏唐山市场。行业的迅速发展的同时,也存在诸多问题。本文从唐山经济型酒店的发展现状入手,论述了怎样改善经济型酒店的经营管理,提高经济型酒店的竞争力,创建唐山经济型酒店品牌。     

The differential effect of environmental dimensionality,size, and structure on budget system characteristics in hotels

Whilst the service sector is a major component of world economies, research into, and thus our understanding of, how management control systems function in the service environment is limited. To advance our knowledge and understanding of the role of budgets in service organizations, this organizational level study extends prior manufacturing context research investigating the influence of contextual variables on budget system characteristics (BSC) to hotels. Since the nature of service firm operations is highly dependent on the external environment, perceived environmental uncertainty (PEU) is likely to be a key contextual variable. Consistent with the organizational theory literature, this study conceptualizes PEU more correctly as a multi-dimensional construct and seeks to ascertain the influence of components of PEU on the BSC of hotels, the chosen service industry. Based on a sample of 106 hotels and using path analyses, the results indicated that: (1) different dimensions of PEU have differential effects on BSC and organizational structure, (2) hotel size has a significant effect on BSC, (3) hotel size does not significantly influence structure, and (4) hotel organizational structure has significant influences on BSC. The finding for PEU raises implications for future researchers studying PEU.     

Political Cost Incentives for Managing the Property-Liability Insurer Loss Reserve

This paper examines the effect of rate regulation on the management of the property-liability insurer loss reserve. The political cost hypothesis predicts that managers make accounting choices to reduce wealth transfers resulting from the regulatory process. Managers may under-state reserves to justify lower rates to regulators. Alternatively, managers may have an incentive to report loss inflating discretionary reserves to reduce the cost of regulatory rate suppression. We find insurers over-state reserves in the presence of stringent rate regulation. Investigating the impact along the conditional reserve error distribution, we discover that a majority of the response occurs from under-reserving firms under-reserving less because of stringent rate regulation.     

Foreign reserve management during the global financial crisis

This paper examines how countries managed their foreign currency reserves during the global financial crisis. Evidence based on changes in reserve stocks suggests that many governments, even those with high levels of pre-crisis reserves, were reluctant to use them during the crisis. As a consequence, a number of recent studies of cross-country experiences during the crisis find little evidence of a positive role for reserves in macroeconomic crisis-management. This paper examines whether this assessment of the non-role of reserves during the crisis is justified. While the reserve stock data indicates stable reserve levels for many countries during the crisis, distinguishing between reserve changes that occurred due to interest income and valuation changes on existing assets and asset purchases and sales, indicates that many emerging economies actively depleted reserves. Further, the data indicate that countries whose pre-crisis reserve levels were in excess of what can be explained by standard models of reserve accumulation were the most likely to sell reserve assets during the crisis.     

Hotel Efficiency Analysis from the Customer’s Point of View in Romania: A Stochastic Production Frontier Approach

The purpose of this article is to measure the efficiency of hotel units in Romania from the customers’ point of view and to identify factors that explain the differences in efficiency between hotel units. A stochastic production frontier is estimated together with a technical inefficiency model using cross-sectional data from 622 hotel units in Romania. The results show that the average efficiency is high. However, there are significant differences between hotels in different regions and with different star ratings. The most influential factor affecting efficiency is the online visibility of a hotel unit on social media platforms and on travel planning sites. The study’s results offer insight for hotel decision-makers to be able to improve the perception of hotel efficiency by taking appropriate action to meet customer needs.     

Recognition of Reserve Values in the Extractive Industries

An issue that focuses clearly on the difference between market and book values is accounting for reserves in the extractive industries. The primary determinant of the value of a minerals or oil-and-producer is the value of the reserves it controls. Hence, one might expect that managers acting to maximise the value of the firm would try to account for the value of reserves in a credible way. However, we show that financial-statement recognition of reserve values is rare. We review the reasons for the general reluctance to recognise reserve values in financial statements and comment on the few exceptions.     

The Association between External Monitoring and Earnings Management in the Property-Casualty Insurance Industry

This paper examines the association between external monitoring and earnings management by property-casualty insurers. We extend previous work by Petroni and Beasley (1996) by expanding the set of external monitors to include both auditors and actuaries. We investigate whether certain auditor-actuary pairs are associated with less understatement of the loss reserve account by financially struggling insurers. Our data consist of loss adjustments reported by 465 property-casualty insurers for reserves established in 1993. The results indicate that under-reserving by weak insurers is essentially eliminated when the firm uses auditors and actuaries that are both from Big Six accounting firms. In contrast, non-Big Six actuaries have less impact on under-reserving by weak insurers. Our results suggest that the quality usually associated with Big Six auditors falls when the audit firm relies on third party actuaries to evaluate the loss reserve estimates of struggling insurance clients. We conjecture that Big Six actuaries insist on more conservative loss reserve levels because, compared to actuarial consulting firms, they are more attuned to the liability exposure of the auditor.     

The Impact of Asbestos and Environmental Reserves Increases on Shareholder Wealth

Abstract

Between 1992 and 2001 significant reserves increase announcements were made by several major property/liability insurers. These reserves increases were for the purpose of recognizing expected asbestos and environmental (A&E) liability. Although most analysts agree that U.S. insurers are underreserved for asbestos and environmental liability, how the market reacts to an insurer’s announcement of an increase in these reserves has not been analyzed. An insurer that is significantly underreserved is likely to be viewed by the market as lacking financial stability for the long term. However, when a company increases its reserves, there is a charge to income and a reduction in capital. If surplus is diminished sufficiently as a result of the increased reserving, regulatory attention and eroding shareholder and market confidence could result as well. By calculating the sample insurers’ cumulative abnormal returns surrounding the largest asbestos and environmental reserves increase announcements made between 1992 and 2001, the study estimates and documents the market’s reaction to these reserves increase announcements. We further explore the potential impact of additional asbestos and environmental liability exposure reporting requirements. Starting with 1995 statutory annual accounting statements, Footnote 24 required additional reporting by insurers of their asbestos and environmental liability exposure (1995 statements were publicly available by the end of the first quarter of 1996). When looking at reserves increase announcements prior to this additional reporting requirement, we find that most insurers announcing large increases in asbestos and environmental reserves prior to 1996 experience a significant reduction in stock price in the days surrounding their announcement. However, consistent with the notion that the additional accounting disclosure requirements after 1995 (Footnote 24) provide valuable information on insurers’ exposure, we find that the announcement of A&E reserves increases after 1995 had no statistically significant effect on the market value of announcing insurers.     

我国外汇储备的溢出效应研究——基于引力模型的分析

本文采用2000-2015年199个国家和地区的外汇储备面板数据,基于引力模型理论,考察了我国高额外汇储备的溢出效应及对全球资产配置的影响。研究发现:我国外汇储备具有随地理距离递减的空间外溢效应,双边汇率制度关联会增加外汇储备持有比例的相似程度,而且这种溢出效应更多地表现在与中国金融发展水平类似、资本账户开放程度相近的国家之间。上述结论凸显了国家间加强外汇储备合作调整的战略意义。探究我国外汇储备的溢出效应,有利于发展中经济体更好地理解外汇储备的变动逻辑,对于完善外汇储备管理体制,参与国际宏观经济政策协调机制均具有一定的积极意义。     

Payment obligations,reserve requirements,and the demand for central bank balances

We develop a model in which a bank's demand for reserves depends on the joint distribution of transactions, reserve requirements, and the interest rate. By devoting resources to its liquidity management, a bank can save on costly reserves required to settle its payments on time. We test the model with data from the largest banks in the Swiss Interbank Clearing system. We find that the turnover ratio (the speed with which a bank turns over its reserves in the payment system) depends largely on the aggregate value of its payments. We also find that reserve requirements impose a highly uneven burden on the banks.     

Loss Reserves and the Employment Status of the Appointed Actuary

Abstract

Property/casualty (P/C) insurers are required to establish loss reserves for unpaid losses at the time that the loss has occurred or is reasonably expected to have occurred. We examine factors that may impact the accurate setting of loss reserves. These include the level of rate regulation faced by the insurer and the incentives to underestimate or overestimate reserves to improve financial ratios or improve solvency scores, to reduce earnings, to defer taxes, or to smooth earnings volatility in order to meet shareholder expectations. The employment status of the Appointed Actuary, that is, whether the Appointed Actuary is an employee of the firm or a consultant, may also impact reserve accuracy. Using a variety of regression models with data from 1995 to 2010, we examine the impact of these factors on the accuracy of reserves posted by Canadian P/C insurers. Our results provide no evidence of systematic differences in the magnitude or direction of loss reserve errors between insurers that use company actuaries versus those that use consultant actuaries. However, we find that for both consultant and company actuaries positive reserve errors are associated with increases in global stock market returns and decreases in unanticipated inflation. The insurance market cycle impacts reserve errors for company actuaries and not consultant actuaries. As well, our results indicate that as the proportion of short-tailed business increases in a company, consultant actuaries are more likely to over-reserve. Similar to many previous studies using U.S. data, we do not find strong evidence regarding insurers’ incentives to deliberately overstate or understate reserves: Loss reserves are relatively unbiased estimates of the true losses paid. Thus these findings should be welcome news to the actuarial profession in Canada and to the prudential regulator: The Appointed Actuary, regardless of employment status, provides objective and unbiased estimates of insurers’ largest liability.     

ACCOUNTING PRACTICE AND BUSINESS FINANCE: SOME CASE STUDIES FROM THE IRON AND COAL INDUSTRY 1865—1914

The use of secret reserves by British companies, both to manipulate the content of published reports and to influence investor perceptions of corporate progress during the late nineteenth and early twentieth century, has been an important focus of historical enquiry. By way of contrast, relatively little attention has been devoted to the possible exploitation of fixed asset accounting practices to achieve similar financial reporting objectives. It is the aim of the present paper to help to redress this imbalance. The principal basis for the study is the archival records of four major iron and coal companies. Identified features of prudent financial policy include: a determination to restrict distributions and the level of activity to what the company could comfortably afford; and a reluctance to use loan finance. The selection of accounting practices was subordinated to the pursuit of these, and related, policy objectives. The identified use of prudent financial policies may be contrasted with Briefs (1976, p. 184) conclusion that nineteenth century companies consistently over-estimated profitability, with a consequential stimulation of business investment and economic growth.     

Toward a Theory of the Intraurban Market for Hotel Services

The article proposes a discrete choice framework for looking at the intraurban market for hotel services. Like most real estate products, hotel services are highly differentiated. Thus, every hotel operator faces a downward-sloping demand function and, in line with microeconomic tradition is assumed to select a profit-maximizing room price. Optimal price determines quantity of services and thus also fixes the optimal occupancy. The demand for a given hotel's services is a product of the urban area's total hotel market size and the hotel's discrete-choice market-share function. Profit maximization cannot be computed in closed form; therefore, it is simulated. Simulations yield optimal room price as well as occupancy, for high-, medium-, and low-quality hotels, while keeping size constant. As expected, simulation results show that high-quality hotels are constrained by size, especially when the market is up. Those of low quality are constrained by insufficient demand, especially when the market is down.     

A Model of QE,Reserve Demand,and the Money Multiplier

Quantitative easing (QE) programs have driven unprecedented expansions in the supply of central bank reserves around the world over the past two decades, fundamentally changing the implementation of monetary policy. The collapse in money multipliers following QE episodes has often been interpreted as implying banks are happy to passively hold most of the reserves created by QE. This paper develops a simple microsimulation model of the banking sector that adapts the traditional money multiplier model and allows for bank reserve demand to be inferred from monetary aggregates. The model allows the use of unwanted reserves by banks to play out over time alongside QE purchases and incorporates both significantly higher reserve demand after 2008 and capital constraints. With these additions, the model explains the persistently lower money multipliers seen in the United States following QE, as well as the growth in commercial bank deposits. The model suggests the demand from banks for reserves has increased substantially since the introduction of QE but not to the point where banks are passively absorbing all newly created reserves.